IFRS 9 Financial Instruments sets out the requirements for recognising and measuring financial assets, financial liabilities, and some contracts to buy or sell non-financial items.
Published July 2014. Effective 1 January 2018; early application is permitted.
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IFRS 9 was issued in November 2009, and subsequently reissued to incorporate new requirements in October 2010, November 2013 and July 2014. IFRS 9 is now complete and when effective will replace IAS 39.
The new standard uses a single approach to determine whether a financial asset is measured at amortised cost or fair value; the approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. Gains and losses on those financial assets classified as measured at fair value are either recognised in profit or loss or in other comprehensive income. The final issue of IFRS 9 in July 2014 made limited amendments to the previous IFRS 9 classification rules, such that:
The standard does not change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to exist: fair value through profit or loss and amortised cost. IFRS 9 requires gains and losses on financial liabilities designated as at fair value through profit or loss to be split into the amount of change in the fair value that is attributable to changes in the credit risk of the liability, which is presented in other comprehensive income, and the remaining amount of change in the fair value of the liability, which is presented in profit or loss. Amounts presented in other comprehensive income are not subsequently reclassified to profit or loss. This requirement to recognise own credit risk-related fair value gains and losses in other comprehensive income may be applied by entities in isolation without applying the other requirements of IFRS 9 at the same time.
All derivatives are measured at fair value with gains and losses recognised in profit or loss, unless hedge accounting is applied. Embedded derivatives are only separated from the host contract where that contract is not an asset within the scope of IFRS 9. Otherwise the entire hybrid contract is accounted for as one instrument.
The standard also provides rules for the derecognition of both financial assets and liabilities, and the reclassification of financial assets. Reclassification of financial liabilities is not allowed.
Additions to the standard in November 2013 put in place a new model for hedge accounting that closely aligns the relevant accounting treatment with risk management activities. The new model:
On completion of the standard in July 2014, guidance on impairment was incorporated into IFRS 9. The new requirements are based on an expected loss impairment model, which replaces the incurred loss model of IAS 39. Under this new model, expected credit losses are accounted for from the date when financial instruments are first recognised. Entities are required to recognise 12-month expected credit losses, or, where credit risk has increased significantly since initial recognition, lifetime expected credit losses.
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1. ED/2017/3 Prepayment Features with Negative Compensation – Proposed amendments to IFRS 9 was issued in April 2017. Some financial assets do not have contractual cash flows that are solely payments of principal and interest because they have a prepayment feature. It is proposed that such financial assets may be measured at amortised cost or fair value through other comprehensive income if the prepayment feature meets certain criteria.
This page was last updated 7 June 2017