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IAS 39 Financial Instruments: Recognition and Measurement

IAS 39 Financial Instruments: Recognition and Measurement sets out the principles for recognising and measuring financial liabilities and some contracts to buy or sell non-financial items.

Revised December 2003 and March 2004. Effective 1 January 2005. IAS 39 requirements for classification and measurement, impairment, hedge accounting and derecognition are withdrawn for periods starting on or after 1 January 2018 when IAS 39 is largely superseded by IFRS 9 Financial Instruments.

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IAS 39 requires financial assets (as defined in IAS 32) to be classified as one of:

  • Fair value through profit or loss
  • Available-for sale
  • Held to maturity, or
  • Loans and receivables.

Financial liabilities (as defined in IAS 32) must be classified as:

  • Fair value through profit or loss, or
  • Financial liabilities

Financial assets and liabilities are initially recognised at fair value plus, if not categorised as fair value through profit or loss, transaction costs.

Subsequent measurement depends which of the above categories the financial instrument is classified as. Normally measurement is at fair value or amortised cost.

Financial assets are derecognised when the contractual rights to cash flows from the asset expire, or the asset and associated risks and rewards are transferred.

Financial liabilities are derecognised when the obligation specified in the contract expires, is cancelled or discharged.

IAS 39 also provides guidance on hedge accounting, classifying hedging relationships as one of three types:

  • Fair value hedge
  • Cash flow hedge
  • Hedge of a net investment in a foreign operation.

Which version of the standard?

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Annual period starts
Effective version of standard
Notes on amendments 
On or after 1 January 2021 IAS 39 2021 Required Standards Includes amendments 1 - 5
1 January 2020 - 31 December 2020 IAS 39 2020 Required Standards Includes amendments 1 - 4 
1 January 2019 - 31 December 2019 IAS 39 2019 Required Standards
Includes amendments 1 - 3
1 January 2018 - 31 December 2018
IAS 39 2018 Required Standards
Includes amendments 1 and 2

The Required Standards book for a particular year assumes that there is no early application of issued but not yet effective IFRSs; The Issued Standards book assumes early application of all issued IFRSs.

For the latest version of the standard, and where the amendments are to be adopted early, refer to IAS 39 2021 Required Standards.

Recent amendments

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1. IFRS 9 amendment to IAS 39

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

IFRS 9 will largely replace IAS 39. Therefore it amends IAS 39 by deleting requirements in respect of:

  • Classification and measurement of financial instruments
  • Derecognition of financial instruments
  • Hedge accounting
  • Credit losses (impairment)

Those parts of IAS 39 retained relate to certain types of hedge accounting as permitted by IFRS 9.

2. IFRS 15 Revenue from Contracts with Customers amendments to IAS 39

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

As a result of the issue of IFRS 15, IAS 39 is amended to:

  • Exclude from the scope of IAS 39 rights and obligations within the scope of IFRS 15 that are financial instruments, other than those which IFRS 15 specifies should be accounted for under IFRS 9.
  • Add a definition of dividends and clarify when they are recognised.
  • Require that trade receivables that don’t have a significant financing component are measured at their IFRS 15 transaction price.
  • Change reference to amortisation to reference to income recognised in accordance with IFRS 15.
  • Add application guidance on determining which financial services fees are integral parts of the effective interest rate.
3. IFRS 16 Leases amendment to IAS 39

To be applied to periods beginning on or after 1 January 2019. Earlier adoption is permitted.

The scope of IAS 39 is amended for an entity that has not adopted IFRS 9 to reflect IFRS 16 terminology:

  • Finance and operating lease receivables recognised by a lessor are subject to the derecognition and impairment provisions of IAS 39 and
  • Lease liabilities recognised by a lessee are subject to the derecognition provisions of IAS 39.
4. Interest Rate Benchmark Reform Phase 1: amendments to IAS 39

To be applied to annual periods beginning on or after 1 January 2020. Earlier application is permitted.

Provides relief to certain hedge accounting requirements in order to avoid unnecessary discontinuation of existing hedge relationships during the period of uncertainty over interest rate benchmark reform.
For cash flow hedges, the amendments require that an entity assume that hedged cash flows based on an interest rate benchmark will continue beyond the period when they could potentially be replaced by cash flows based on an alternative rate. Similarly, for fair value hedges, the amendments require that interest rate benchmark risk continues to be treated as identifiable in the hedged item even if this ceases to be the case.

The amendments are applied retrospectively to hedge relationships that existed at the beginning of the reporting period in which an entity first applies the amendments or were designated thereafter, and to gains or losses in the cash flow hedge reserve at the beginning of that period.

5. Interest Rate Benchmark Reform Phase 2: amendments to IAS 39

Effective from 1 January 2021; earlier adoption is permitted.

The amendment to IAS 39  allows companies to reset cumulative fair values to zero for the purpose of performing the retrospective effectiveness assessment at the point that interest rate benchmarks are replaced. This option is available for each hedging relationship.

Current proposals

  1. The final issue of the IFRS 9 in 2014 includes general hedge accounting guidance. The IASB has, as a separate project, issued a discussion paper on macro hedge accounting. When this project is complete, the new guidance will replace that in IAS 39. The Board has completed Core Model Outreach to gather stakeholders’ views and is now considering the challenges identified. 

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This page was last updated 23 June 2021