Challenging time ahead putting IFRS 9 into practice

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

  1. IFRS 9 introduces a principle-based system for the classification and measurement of financial assets, which depends upon certain characteristics. Which of the following statements concerning IFRS 9 is untrue?

  2. The business model approach refers to how an entity manages its financial assets in order to generate cash flows either by collecting contractual cash flows, selling financial assets or both. How are financial assets accounted for where the business model's objective is to hold assets in order to collect contractual cash flows and not sell those assets?

  3. The new standard clarifies the existing guidance on the collection of the asset's contractual cash flows. When determining the applicability of this business model, an entity should consider past and future sales information. If an entity holds financial assets for sale then it will fail the business model test for accounting for the financial assets at amortised cost. How are financial assets accounted for where the business model's objective is both collecting contractual cash flows and selling financial assets?

  4. Unlike the available-for-sale criteria in IAS 39, the criteria for measuring at FVTOCI are based on the financial asset’s cash flow characteristics and the entity’s business model. Why was the category of FVTOCI introduced for financial assets?

  5. Financial assets may qualify for amortised cost or FVOCI only in certain circumstances. What is the key requirement for qualifying for measurement at amortised cost or FVTOCI?

  6. IFRS 9 introduces new guidance on how the contractual cash flows characteristics assessment applies to debt instruments that may contain a modified time value element. For example, those instruments that may contain a variable interest rate. Under what circumstances would an instrument with these characteristics fail the contractual cash flow characteristics test?

  7. IAS 39 was felt to work well as regards the accounting for financial liabilities, therefore the IASB felt that there was little need for change. As a result of the lack of change in IFRS 9, how are most financial liabilities likely to be measured?

  8. Which of the following financial assets should not be valued at fair value through profit or loss?

  9. IFRS 9 introduces a new impairment model for financial assets that is based on expected losses rather than incurred losses. It applies to amortised-cost financial assets and those categorised as FVTOCI. It also applies to certain loan commitments, financial guarantees, lease receivables, and contract assets. What is the key change in accounting for impairment in IFRS 9?

  10. IFRS 9 introduces a reformed model for hedge accounting with enhanced disclosures about risk management activity. Which of the following criteria is not a requirement for a hedging relationship under IFRS 9?