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IFRS 9 Financial Instruments

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.

Measurement of financial assets

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:

  • Debt instruments meeting given criteria must be measured at amortised cost unless designated as measured at FVTPL;
  • Debt instruments meeting other given criteria must be measured at FVTOCI unless designated as measured at FVTPL
  • All other debt instruments are measured at FVTPL
  • All equity instruments are measured at FVTPL unless they are not held for trading and an entity has elected to measure them at FVTOCI. in profit or loss except where an entity has elected to recognise gains and losses on an equity investment in other comprehensive income.

Measurement of financial liabilities

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.

Derivatives and hedge accounting

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.

Derecognition and hedge accounting

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:

  • replaces the IAS 39 hedge effectiveness test with an objectives-based test that focuses on the economic relationship between the hedged item and hedging instrument.
  • Allows that a risk component is designated as the hedged item for non-financial items as well as financial items.
  • Allows the designation of more groups of items as the hedged item.
  • Allows items such as the time value of an option to be accounted for as a cost of hedging.
  • Introduces more extensive and meaningful disclosure requirements.


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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Recent amendments

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2. IFRS 15 Revenue from Contracts with Customers amendments to IFRS 9

Effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

As a result of the issue of IFRS 15, IFRS 9 is amended to:

  • Clarify how trade receivables should be initially measured
  • Clarify when dividends should be recognised in profit or loss
  • Refer to income recognised in accordance with IFRS 15  rather than amortisation when referring to financial guarantee contracts and commitments to provide a loan at below-market interest rate.
2. IFRS 16 Leases amendments to IFRS 9

Effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted.

As a result of the issue of IFRS 15, IFRS 9 is amended to:

  • Refer to IFRS 16 rather than IAS 17
  • Delete references to finance leases in respect of lease liabilities
  • Replace references to contingent rentals with references to variable lease payments.
3. IFRS 17 Insurance Contracts amendment to IFRS 9*

 To be applied to periods beginning on or after 1 January 2021. Earlier adoption is permitted.

IFRS 9 is amended to

  • Clarify that IFRS 9 does not apply to rights and obligations arising under a contract within the scope of IFRS 17 and provide exceptions
  • Provide guidance on the derecognition of financial liabilities related to:
  • investment funds that provide investors with benefits determined by units in the fund and
  • groups of insurance contracts with direct participation features.
4. Prepayments Features with Negative Compensation amendments to IFRS 9*

Effective for annual periods beginning on or after 1 January 2019. Earlier application is permitted.

Some financial assets do not have contractual cash flows that are solely payments of principal and interest because they have a prepayment feature. The amendments require that such financial assets are measured at amortised cost or fair value through other comprehensive income if the prepayment feature meets certain criteria.