IFRS 9: Financial Instruments will come into effect on 1 January 2018, with early application permitted.
The long-awaited final version of IFRS 9 brings together classification and measurement, impairment, and hedge accounting elements of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and Measurement. IASB states that “the package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting.”
This is how the elements have been described:
Classification and Measurement - IFRS 9 introduces a logical approach for the classification of financial assets, which is driven by cash-flow characteristics and the business model in which an asset is held. This single, principle-based approach replaces existing rule-based requirements that are generally considered to be complex and difficult to apply. The new approach also results in a single impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting requirements.
Impairment - a new, expected-loss impairment model that will require more timely recognition of expected credit losses. The new Standard requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a more timely basis.
Hedge accounting - a significant overhaul of hedge accounting that aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements.
Own credit – the change in accounting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss.
There is also an article that looks at impairment, changes in own credit, hedge accounting and disclosures. It is called IFRS9: A Complete Package for Investors and it is upfront with its assessment that the “biggest difference under the new standard will be in the accounting for impairment.” It states that entities are required “to estimate and account for expected credit losses for all relevant financial assets, starting from when they first lend money or invest in a financial instrument” and also that they must use “all relevant information that is available to them.”