IASB proposes adjustment to effective date of IFRS 9

04 August 2011 The International Accounting Standards Board (IASB) published today for public comment an exposure draft of proposals to adjust the mandatory effective date of IFRS 9 Financial Instruments. The exposure draft proposes an effective date of 1 January 2015 (currently 1 January 2013) for IFRS 9. In publishing the exposure draft, the Board noted the importance of aligning all phases of the project (both completed and ongoing) to have the same effective date. The comment period of the exposure draft closes on 21 October 2011. The exposure draft, ED/2011/3 Amendments to IFRS 9 Financial Instruments (November 2009) and IFRS 9 Financial Instruments (October 2010): Mandatory Effective Date, is available to download from http://go.ifrs.org/IFRS9+effective+date+ED. The proposed deferral would only change the date when IFRS 9 would be mandatory. Entities could still elect to use IFRS 9 before 2015.

Press enquiries

Mark Byatt, Director of Corporate Communications, IFRS Foundation Telephone: +44 (0)20 7246 6472 Email: mbyatt@ifrs.org Sonja Lardeau, Communications Manager, IFRS Foundation Telephone: +44 (0)20 7246 6463 Email: slardeau@ifrs.org

Technical enquiries

Katherine Cancro, Assistant Technical Manager, IASB Telephone: +44 (0)20 7246 6928 E-mail: kcancro@ifrs.org

IFRS 9: Financial Instruments (replacement of IAS 39)

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The objective of this project is to improve the usefulness of financial statements for users by simplifying the classification and measurement requirements for financial instruments. In November 2008 the IASB added this project to their active agenda. The FASB also added this project to their agenda in December 2008. Read more

Project set-up
The IASBs project plan for the replacement of IAS 39 consists of three main phases: Phases Status Original publication IFRS 9 Financial Instruments was published in November 2009 and contained requirements for financial assets. Requirements for financial liabilities were added to IFRS 9 in October 2010. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. In December 2011, the Board amended IFRS 9 to require application for annual periods beginning on or after 1 January 2015 and to not require the restatement of

Phase 1: Classification and measurement

comparative-period financial statements upon initial application. Limited modifications to IFRS 9 On 15 November 2011, the Board tentatively decided to consider making limited modifications to IFRS 9. The supplementary document Financial Instruments: Impairment was published in January 2011. The comment period closed on 1 April 2011 and redeliberations are ongoing. The exposure draft Hedge Accounting was published in December 2010. The comment period closed on 9 March 2011 and redeliberations have concluded.

Phase 2: Impairment methodology

Phase 3: Hedge accounting

The IASB separately addressed the requirements for offsetting financial assets and financial liabilities with the FASB in December 2011. Click here to go to the Asset and Liability Offsetting page.

Advisory groups
Financial Instruments Working Group (FIWG) In 2004 the IASB set up a Financial Instruments Working Group (FIWG) that includes users, preparers and auditors of financial statements of both financial institutions and other types of entities. The Financial Crisis Advisory Group (FCAG) Accounting issues emerging from the global crisis are being considered jointly by both the IASB and the FASB. As part of that commitment, the boards established an advisory group comprised of senior leaders with broad international experience in financial markets to assist in that important process. Page last updated: 8 February 2012 Related information Click here for a series of webcasts on the project to replace IAS 39 For information on the FASBs financial instruments exposure draft, click here. Project contacts Sue Lloyd Senior Director, Technical Activities email: slloyd@ifrs.org

IFRS 9 Financial Instruments HISTORY OF IFRS 9 14 July 2009 IASB issues exposure draft Financial Instruments: Classification and Measurement IASB issues IFRS 9 Financial Instruments, covering classification and measurement of financial assets, as the first part of its project to replace IAS 39 Click for IASB Press Release (PDF 103k). Concurrent with issuing IFRS 9, the IASB published a Project

12 November 2009

Summary and Feedback Statement (PDF 133k) and a separate Summary of Responses to European Concerns (PDF 25k). IASB reissues IFRS 9 Financial Instruments, incorporating new requirements on accounting for financial liabilities and carrying over from IAS 39 the requrements for derecognition of financial assets and financial liabilities. Click for IASB Press Release (PDF 33k). Concurrent with reissuing IFRS 9, the IASB published a IASB feedback statement (PDF 68k). IASB publishes an exposure draft proposing to push back the mandatory effective date of IFRS 9 Financial Instruments from 1 January 2013 to 1 January 2015. Click for IASB Press Release (PDF 110k). IASB publishes Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7), which amends the effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, and modifies the relief from restating comparative periods and the associated disclosures in IFRS 7 Original effective date of IFRS 9, with early adoption permitted starting in 2009 Revised effective date of IFRS 9, with early adoption permitted RELATED INTERPRETATIONS

28 October 2010

4 August 2011

16 December 2011

1 January 2013 1 January 2015

Issues Relating to This Standard that IFRIC Did Not Add to Its Agenda AMENDMENTS UNDER CONSIDERATION BY IASB

Financial Instruments Limited reconsideration of IFRS 9 SUMMARY OF IFRS 9

IFRS 9 Is a 'Work in Progress' and Will Eventually Replace IAS 39 in its Entirety On 12 November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets that must be applied starting 1 January 2013, with early adoption

permitted. Click for IASB Press Release (PDF 101k). On 28 October 2010, the IASB reissued IFRS 9, incorporating new requirements on accounting for financial liabilities, and carrying over from IAS 39 the requrements for derecognition of financial assets and financial liabilities (the Basis for Conclusions was also restructured, and IFRIC 9 and the 2009 version of IFRS 9 were withdrawn). Click for IASB Press Release (PDF 33k). On 16 December 2011, the IASB issued Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7), which amended the effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, and modified the relief from restating comparative periods and the associated disclosures in IFRS 7. The IASB intends to expand IFRS 9 to add new requirements for impairment of financial assets measured at amortised cost, and hedge accounting. On completion of these various projects, then, IFRS 9 will be a complete replacement for IAS 39. Other sub-projects in the IASB's comprehensive project to replace IAS 39:

Impairment of Financial Assets Measured at Amortised Cost Hedge Accounting Offsetting of financial assets and liabilities.

Overview of IFRS 9 Initial measurement of financial instruments All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. [IFRS 9, paragraph 5.1.1] Subsequent measurement of financial assets IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications those measured at amortised cost and those measured at fair value. Classification is made at the time the financial asset is initially recognised, namely when the entity becomes a party to the contractual provisions of the instrument. [IFRS 9, paragraph 4.1.1] Debt instruments A debt instrument that meets the following two conditions can be measured at amortised cost (net of any writedown for impairment) [IFRS 9, paragraph 4.1.2]:

Business model test. The objective of the entity's business model is to hold

the financial asset to collect the contractual cash flows (rather than to sell the instrument prior to its contractual maturity to realise its fair value changes). Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

All other debt instruments must be measured at fair value through profit or loss (FVTPL). [IFRS 9, paragraph 4.1.4] Fair value option Even if an instrument meets the two amortised cost tests, IFRS 9 contains an option to designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. [IFRS 9, paragraph 4.1.5] IAS 39's AFS and HTM categories are eliminated The available-for-sale and held-to-maturity categories currently in IAS 39 are not included in IFRS 9. Equity instruments All equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to report value changes in 'other comprehensive income'. There is no 'cost exception' for unquoted equities. 'Other comprehensive income' option If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at fair value through other comprehensive income (FVTOCI) with only dividend income recognised in profit or loss. [IFRS 9, paragraph 5.7.5] Measurement guidance Despite the fair value requirement for all equity investments, IFRS 9 contains guidance on when cost may be the best estimate of fair value and also when it might not be representative of fair value.

Subsequent measurement of financial liabilities IFRS 9 doesn't change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to exist: fair value through profit or loss (FVTPL) and amortised cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortised cost unless the fair value option is applied. [IFRS 9, paragraph 4.2.1] Fair value option IFRS 9 contains an option to designate a financial liability as measured at FVTPL if [IFRS 9, paragraph 4.2.2]:

doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases, or the liability is part or a group of financial liabilities or financial assets and financial liabilities that is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel.

A financial liability which does not meet any of these criteria may still be designated as measured at FVTPL when it contains one or more embedded derivatives that would require separation. [IFRS 9, paragraph 4.3.5] 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 shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability which shall be presented in profit or loss. The new guidance allows the recognition of the full amount of change in the fair value in the profit or loss only if the recognition of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. That determination is made at initial recognition and is not reassessed. [IFRS 9, paragraphs 5.7.7-5.7.8] Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss, the entity may only transfer the cumulative gain or loss within equity. Derecognition of financial assets The basic premise for the derecognition model in IFRS 9 (carried over from IAS 39)

is to determine whether the asset under consideration for derecognition is: [IFRS 9, paragraph 3.2.2]

an asset in its entirety or specifically identified cash flows from an asset (or a group of similar financial assets) or a fully proportionate (pro rata) share of the cash flows from an asset (or a group of similar financial assets). or a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar financial assets)

Once the asset under consideration for derecognition has been determined, an assessment is made as to whether the asset has been transferred, and if so, whether the transfer of that asset is subsequently eligible for derecognition. An asset is transferred if either the entity has transferred the contractual rights to receive the cash flows, or the entity has retained the contractual rights to receive the cash flows from the asset, but has assumed a contractual obligation to pass those cash flows on under an arrangement that meets the following three conditions: [IFRS 9, paragraphs 3.2.4-3.2.5]

the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the original asset the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient), the entity has an obligation to remit those cash flows without material delay

Once an entity has determined that the asset has been transferred, it then determines whether or not it has transferred substantially all of the risks and rewards of ownership of the asset. If substantially all the risks and rewards have been transferred, the asset is derecognised. If substantially all the risks and rewards have been retained, derecognition of the asset is precluded. [IFRS 9, paragraphs 3.2.6] If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has relinquished control of the asset or not. If the entity does not control the asset then derecognition is appropriate; however if the entity has retained control of the asset, then the entity continues to recognise the asset to the extent to which it has a continuing involvement in the asset. [IFRS 9, paragraph 3.2.9] These various derecognition steps are summarised in the decision tree in paragraph B3.2.1. Derecognition of financial liabilities

A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged or cancelled or expires. [IFRS 9, paragraph 3.3.1] Where there has been an exchange between an existing borrower and lender of debt instruments with substantially different terms, or there has been a substantial modification of the terms of an existing financial liability, this transaction is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original financial liability is recognised in profit or loss. [IFRS 9, paragraphs 3.3.2-3.3.3] Derivatives All derivatives, including those linked to unquoted equity investments, are measured at fair value. Value changes are recognised in profit or loss unless the entity has elected to treat the derivative as a hedging instrument in accordance with IAS 39, in which case the requirements of IAS 39 apply. Embedded derivatives An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument. [IFRS 9, paragraph 4.3.1] The embedded derivative concept of IAS 39 has been included in IFRS 9 to apply only to hosts that are not assets within the scope of the standard, Consequently, embedded derivatives that under IAS 39 would have been separately accounted for at FVTPL because they were not closely related to the financial host asset will no longer be separated. Instead, the contractual cash flows of the financial asset are assessed in their entirety, and the asset as a whole is measured at FVTPL if any of its cash flows do not represent payments of principal and interest. The embedded derivative concept of IAS 39 is now included in IFRS 9 and continues to apply to financial liabilities and hosts not within the scope of the standard (e.g. leasing contracts, insurance contracts, contracts for the purchase or sale of a non-financial items). Reclassification For financial assets, reclassification is required between FVTPL and amortised cost, or vice versa, if and only if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply. [IFRS 9, paragraph 4.4.1]

If reclassification is appropriate, it must be done prospectively from the reclassification date. An entity does not restate any previously recognised gains, losses, or interest. IFRS 9 does not allow reclassification where:

the 'other comprehensive income' option has been exercised for a financial asset, or the fair value option has been exercised in any circumstance for a financial assets or financial liability.

Disclosures IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures including added disclosures about investments in equity instruments designated as at FVTOCI. An Overview of International Financial Reporting Standards

Standards. International Accounting Standards (IASs) were issued by the IASC from 1973 to 2000. The IASB replaced the IASC in 2001. Since then, the IASB has amended some IASs and has proposed to amend others, has replaced some IASs with new International Financial Reporting Standards (IFRSs), and has adopted or proposed certain new IFRSs on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards. Compliance with Standards. Financial statements may not be described as complying with IFRSs unless they comply with all of the requirements of each applicable standard and each applicable interpretation. Summaries of Standards. Click on an IAS or IFRS number below to go to an unofficial summary of the standard. Please remember that the summaries of IASs and IFRSs only cover highlights and are not a substitute for reading the entire standard. They should not be relied on for preparing financial statements. The summaries reflect the latest revisions to the standard (including some revisions whose adoption is permitted but not yet required) unless otherwise stated. IASB Framework. While not a standard, the IASB Framework for the Preparation and Presentation of Financial Statements serves as a guide to resolving accounting issues that are not addressed directly in a standard. Moreover, in the absence of a

standard or an interpretation that specifically applies to a transaction, IAS 8 requires that an entity must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria and measurement concepts for assets, liabilities, income, and expenses in the Framework. The IASB adopted the Framework in April 2001. It had originally been adopted by the IASC in 1989. Currently, the IASB is working on a Project to Revise the Framework.

Preface to IFRSs. Sets out IASB's objectives, the scope of IFRSs, due process, and policies on effective dates, format, and language for IFRSs. Effective Dates. Click here for a Table of Effective Dates of Recent Standards. How to Obtain. o The IASB publishes: individual copies of its standards, an annual "Bound Volume" of all existing standards and interpretations, electronic IFRSs (eIFRS), and a CD ROM with standards and Interpretations. o Publications and subscriptions may be ordered on IASB's website www.ifrs.org. o In April 2009, the IASB began making available on its website, without charge, access to the versions of IFRSs (including interpretations) published in the most recent bound volume of IFRSs and the application guidance that is an integral part of those standards. Free registration is required. The illustrative examples, implementation guidance, and bases for conclusions that accompany, but are not part of, the standards are available only to subscribers. The free standards are available in English and several other languages. Each standard is a separate PDF file. You can access the standards on the IASB's Website: Here for the English version; and Here for the Translations. o When IASB standards are endorsed by the European Commission for use in the European Union, they (minus the non-mandatory guidance and bases for conclusions) are published in the Official Journal of the European Union in all of the EU languages. They Can Be Accessed

Here. Exposure drafts of proposed new or revised IFRSs may be downloaded from the IASB's website without charge during the comment period.

The term 'IFRSs'. The term International Financial Reporting Standards (IFRSs) has both a narrow and a broad meaning. Narrowly, IFRSs refers to the new numbered series of pronouncements that the IASB is issuing, as distinct from the International Accounting Standards (IASs) series issued by its predecessor. More broadly, IFRSs refers to the entire body of IASB pronouncements, including standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee. [On this website, consistent with IASB policy, we abbreviate International Financial Reporting Standards (plural) as IFRSs and International Accounting Standards (plural) as IASs.] Interpretations. Click here for information about the Information about Interpretations of IASB Standards. Technical Corrections. Click here for information about the IASB's Approach to Making Minor Technical Corrections to Its Standards.

International Financial Reporting Standard for Small and Medium-sized Entities

International Financial Reporting Standard for Small and Medium-sized Entities

IASB completes first phase of financial instruments accounting reform

12 November 2009 The International Accounting Standards Board (IASB) issued today a new International Financial Reporting Standard (IFRS) on the classification and measurement of financial assets. Publication of the IFRS represents the completion of the first part of a three-part project to replace IAS 39 Financial Instruments: Recognition and Measurement with a new standard - IFRS 9 Financial Instruments. Proposals addressing the second part, the impairment methodology for financial assets were published for public comment at the beginning of November, while proposals on the third part, on hedge accounting, continue to be developed. The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity an objective endorsed by the Group of 20 leaders (G20) and other stakeholders internationally. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. 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. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Thus IFRS 9 improves comparability and makes financial statements easier to understand for investors and other users. The IASB has received broad support for its approach. This became evident during the unprecedented global scale of consultation and outreach activity it undertook in order to refine proposals contained within the exposure draft published in July 2009. Round table discussions were held in Asia, Europe and the United States. Interactive webcasts, each attracting thousands of registered participants, have been held, often on a weekly basis. In addition, more than a hundred meetings have been held with interested parties around the world during the past four months. The views expressed to the IASB during its consultations resulted in the proposals being modified to address concerns raised and to improve the standard. For example, IFRS 9 requires the business model of an entity to be assessed first to avoid the need to consider the contractual cash flow characteristics of every individual asset. It requires reclassification of assets if the business model of an entity changes. The IASB changed the accounting that was proposed for structured credit-linked investments and for purchases of distressed debt. The IASB also addressed concerns expressed about the problems created by the mismatch in timings between the mandatory effective date of IFRS 9 and the likely effective date of a new standard on insurance contracts. Furthermore, in response to suggestions made by some respondents, the IASB decided not to finalise requirements for financial liabilities in IFRS 9. The IASB has begun the process of giving further consideration to the classification and measurement of financial liabilities and it expects to issue final requirements during 2010. A feedback statement providing comprehensive details of how the IASB has responded to comments received through the consultation process is available for download by clicking here. The effective date for mandatory adoption of IFRS 9 Financial Instruments is 1 January 2013. Consistent with requests by the G20 leaders and others, early adoption is permitted for 2009 year-end financial statements. Commenting on IFRS 9, Sir David Tweedie, Chairman of the IASB, said: We have delivered on our commitment to the G20 and stakeholders internationally to provide an improved financial instrument standard for the classification and measurement of financial assets for use in 2009. Benefiting from unprecedented levels of consultation with stakeholders around the world, the IASB has made significant changes in its initial proposals to improve the standard, provide enhanced transparency and respond to stakeholder concerns. IFRS 9 Financial Instruments is available for eIFRS subscribers from today. Printed copies will be available shortly, at 15 plus shipping, from the IASC Foundation Publications Department. Those wishing to subscribe to eIFRSs should visit the IASB online shop or contact: SUMMARY OF IFRS 9

IFRS 9 Is a 'Work in Progress' and Will Eventually Replace IAS 39 in its Entirety On 12 November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 introduces new requirements for classifying and measuring financial assets that must be applied starting 1 January 2013, with early adoption permitted. Click for IASB Press Release (PDF 101k). On 28 October 2010, the IASB reissued IFRS 9,

incorporating new requirements on accounting for financial liabilities, and carrying over from IAS 39 the requrements for derecognition of financial assets and financial liabilities (the Basis for Conclusions was also restructured, and IFRIC 9 and the 2009 version of IFRS 9 were withdrawn). Click for IASB Press Release (PDF 33k). On 16 December 2011, the IASB issued Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS 7), which amended the effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, and modified the relief from restating comparative periods and the associated disclosures in IFRS 7. The IASB intends to expand IFRS 9 to add new requirements for impairment of financial assets measured at amortised cost, and hedge accounting. On completion of these various projects, then, IFRS 9 will be a complete replacement for IAS 39. Other sub-projects in the IASB's comprehensive project to replace IAS 39:

Impairment of Financial Assets Measured at Amortised Cost Hedge Accounting Offsetting of financial assets and liabilities.

Overview of IFRS 9 Initial measurement of financial instruments All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs. [IFRS 9, paragraph 5.1.1] Subsequent measurement of financial assets IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications those measured at amortised cost and those

measured at fair value. Classification is made at the time the financial asset is initially recognised, namely when the entity becomes a party to the contractual provisions of the instrument. [IFRS 9, paragraph 4.1.1] Debt instruments A debt instrument that meets the following two conditions can be measured at amortised cost (net of any writedown for impairment) [IFRS 9, paragraph 4.1.2]:

Business model test. The objective of the entity's business model is to hold the financial asset to collect the contractual cash flows (rather than to sell the instrument prior to its contractual maturity to realise its fair value changes). Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.

All other debt instruments must be measured at fair value through profit or loss (FVTPL). [IFRS 9, paragraph 4.1.4] Fair value option Even if an instrument meets the two amortised cost tests, IFRS 9 contains an option to designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases. [IFRS 9, paragraph 4.1.5] IAS 39's AFS and HTM categories are eliminated The available-for-sale and held-to-maturity categories currently in IAS 39 are not included in

IFRS 9. Equity instruments All equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to report value changes in 'other comprehensive income'. There is no 'cost exception' for unquoted equities. 'Other comprehensive income' option If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at fair value through other comprehensive income (FVTOCI) with only dividend income recognised in profit or loss. [IFRS 9, paragraph 5.7.5] Measurement guidance Despite the fair value requirement for all equity investments, IFRS 9 contains guidance on when cost may be the best estimate of fair value and also when it might not be representative of fair value. Subsequent measurement of financial liabilities IFRS 9 doesn't change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to exist: fair value through profit or loss (FVTPL) and amortised cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities are measured at amortised cost unless the fair value option is applied. [IFRS 9, paragraph 4.2.1] Fair value option IFRS 9 contains an option to designate a financial liability as measured at FVTPL if [IFRS 9, paragraph 4.2.2]:

doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases, or the liability is part or a group of financial liabilities or financial assets and financial liabilities that is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel.

A financial liability which does not meet any of these criteria may still be designated as measured at FVTPL when it contains one or more embedded derivatives that would require separation. [IFRS 9, paragraph 4.3.5] 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 shall be presented in other comprehensive income, and the remaining amount of change in the fair value of the liability which shall be presented in profit or loss. The new guidance allows the recognition of the full amount of change in the fair value in the profit or loss only if the recognition of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. That determination is made at initial recognition and is not reassessed. [IFRS 9, paragraphs 5.7.7-5.7.8] Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss, the entity may only transfer the cumulative gain or loss within equity. Derecognition of financial assets

The basic premise for the derecognition model in IFRS 9 (carried over from IAS 39) is to determine whether the asset under consideration for derecognition is: [IFRS 9, paragraph 3.2.2]

an asset in its entirety or specifically identified cash flows from an asset (or a group of similar financial assets) or a fully proportionate (pro rata) share of the cash flows from an asset (or a group of similar financial assets). or a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar financial assets)

Once the asset under consideration for derecognition has been determined, an assessment is made as to whether the asset has been transferred, and if so, whether the transfer of that asset is subsequently eligible for derecognition. An asset is transferred if either the entity has transferred the contractual rights to receive the cash flows, or the entity has retained the contractual rights to receive the cash flows from the asset, but has assumed a contractual obligation to pass those cash flows on under an arrangement that meets the following three conditions: [IFRS 9, paragraphs 3.2.4-3.2.5]

the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the original asset the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient), the entity has an obligation to remit those cash flows without material delay

Once an entity has determined that the asset has been transferred, it then determines whether or not it has transferred substantially all of the risks and rewards of ownership of the asset. If substantially all the risks and rewards have been transferred, the asset

is derecognised. If substantially all the risks and rewards have been retained, derecognition of the asset is precluded. [IFRS 9, paragraphs 3.2.6] If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has relinquished control of the asset or not. If the entity does not control the asset then derecognition is appropriate; however if the entity has retained control of the asset, then the entity continues to recognise the asset to the extent to which it has a continuing involvement in the asset. [IFRS 9, paragraph 3.2.9] These various derecognition steps are summarised in the decision tree in paragraph B3.2.1. Derecognition of financial liabilities A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the obligation specified in the contract is either discharged or cancelled or expires. [IFRS 9, paragraph 3.3.1] Where there has been an exchange between an existing borrower and lender of debt instruments with substantially different terms, or there has been a substantial modification of the terms of an existing financial liability, this transaction is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original financial liability is recognised in profit or loss. [IFRS 9, paragraphs 3.3.2-3.3.3] Derivatives All derivatives, including those linked to unquoted equity investments, are measured at fair value. Value changes are recognised in profit or loss unless the entity has elected to treat the derivative as a hedging instrument in accordance with IAS 39, in which case the requirements of IAS 39 apply.

Embedded derivatives An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument. [IFRS 9, paragraph 4.3.1] The embedded derivative concept of IAS 39 has been included in IFRS 9 to apply only to hosts that are not assets within the scope of the standard, Consequently, embedded derivatives that under IAS 39 would have been separately accounted for at FVTPL because they were not closely related to the financial host asset will no longer be separated. Instead, the contractual cash flows of the financial asset are assessed in their entirety, and the asset as a whole is measured at FVTPL if any of its cash flows do not represent payments of principal and interest. The embedded derivative concept of IAS 39 is now included in IFRS 9 and continues to apply to financial liabilities and hosts not within the scope of the standard (e.g. leasing contracts, insurance contracts, contracts for the purchase or sale of a nonfinancial items). Reclassification For financial assets, reclassification is required between FVTPL and amortised cost, or vice versa, if and only if the entity's business model objective for its financial assets changes so its previous model assessment would no longer apply. [IFRS 9, paragraph 4.4.1] If reclassification is appropriate, it must be done prospectively from the reclassification date. An entity does not restate any previously recognised gains, losses, or interest.

IFRS 9 does not allow reclassification where:

the 'other comprehensive income' option has been exercised for a financial asset, or the fair value option has been exercised in any circumstance for a financial assets or financial liability.

Disclosures IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures including added disclosures about investments in equity instruments designated as at FVTOCI.