Financial Instruments

In April 2001 the International Accounting Standards Board (Board) adopted IAS 39 Financial Instruments: Recognition and Measurement, which had originally been issued by the International Accounting Standards Committee in March 1999.

The Board had always intended that IFRS 9 Financial Instruments would replace IAS 39 in its entirety. However, in response to requests from interested parties that the accounting for financial instruments should be improved quickly, the Board divided its project to replace IAS 39 into three main phases. As the Board completed each phase, it issued chapters in IFRS 9 that replaced the corresponding requirements in IAS 39.

In November 2009 the Board issued the chapters of IFRS 9 relating to the classification and measurement of financial assets. In October 2010 the Board added the requirements related to the classification and measurement of financial liabilities to IFRS 9. This includes requirements on embedded derivatives and how to account for changes in own credit risk on financial liabilities designated under the fair value option.

In October 2010 the Board also decided to carry forward unchanged from IAS 39 the requirements related to the derecognition of financial assets and financial liabilities. Because of these changes, in October 2010 the Board restructured IFRS 9 and its Basis for Conclusions. In December 2011 the Board deferred the mandatory effective date of IFRS 9.

In November 2013 the Board added a Hedge Accounting chapter. IFRS 9 permits an entity to choose as its accounting policy either to apply the hedge accounting requirements of IFRS 9 or to continue to apply the hedge accounting requirements in IAS 39. Consequently, although IFRS 9 is effective (with limited exceptions for entities that issue insurance contracts and entities applying the IFRS for SMEs Standard), IAS 39, which now contains only its requirements for hedge accounting, also remains effective.

In July 2014 the Board issued the completed version of IFRS 9. The Board made limited amendments to the classification and measurement requirements for financial assets by addressing a narrow range of application questions and by introducing a ‘fair value through other comprehensive income’ measurement category for particular simple debt instruments. The Board also added the impairment requirements relating to the accounting for an entity’s expected credit losses on its financial assets and commitments to extend credit. A new mandatory effective date was also set.

In May 2017 when IFRS 17 Insurance Contracts was issued, it amended the derecognition requirements in IFRS 9 by permitting an exemption for when an entity repurchases its financial liability in specific circumstances.

In October 2017 IFRS 9 was amended by Prepayment Features with Negative Compensation (Amendments to IFRS 9). The amendments specify that particular financial assets with prepayment features that may result in reasonable negative compensation for the early termination of such contracts are eligible to be measured at amortised cost or at fair value through other comprehensive income.

In September 2019 the Board amended IFRS 9 and IAS 39 by issuing Interest Rate Benchmark Reform to provide specific exceptions to hedge accounting requirements in IFRS 9 and IAS 39 for (a) highly probable requirement; (b) prospective assessments; (c) retrospective assessment (IAS 39 only); and (d) separately identifiable risk components. Interest Rate Benchmark Reform also amended IFRS 7 to add specific disclosure requirements for hedging relationships to which an entity applies the exceptions in IFRS 9 or IAS 39.

In August 2020 the Board issued Interest Rate Benchmark Reform―Phase 2 which amended requirements in IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 relating to:

• changes in the basis for determining contractual cash flows of financial assets, financial liabilities and lease liabilities;

• hedge accounting; and

• disclosures.

The Phase 2 amendments apply only to changes required by the interest rate benchmark reform to financial instruments and hedging relationships.

Other Standards have made minor consequential amendments to IFRS 9. They include Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters (Amendments to IFRS 1) (issued December 2010), IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IFRS 13 Fair Value Measurement (issued May 2011), IAS 19 Employee Benefits (issued June 2011), Annual Improvements to IFRSs 2010–2012 Cycle (issued December 2013), IFRS 15 Revenue from Contracts with Customers (issued May 2014), IFRS 16 Leases (issued January 2016), Amendments to References to the Conceptual Framework in IFRS Standards (issued March 2018), Annual Improvements to IFRS Standards 2018–2020 (issued May 2020) and Amendments to IFRS 17 (issued June 2020).

CONTENTS

from paragraph

INTERNATIONAL FINANCIAL REPORTING STANDARD 9

FINANCIAL INSTRUMENTS

CHAPTERS

1 OBJECTIVE 1.1

2 SCOPE 2.1

3 RECOGNITION AND DERECOGNITION 3.1.1

3.1 Initial recognition 3.1.1

3.2 Derecognition of financial assets 3.2.1

3.3 Derecognition of financial liabilities 3.3.1

4 CLASSIFICATION 4.1.1

4.1 Classification of financial assets 4.1.1

4.2 Classification of financial liabilities 4.2.1

4.3 Embedded derivatives 4.3.1

4.4 Reclassification 4.4.1

5 MEASUREMENT 5.1.1

5.1 Initial measurement 5.1.1

5.2 Subsequent measurement of financial assets 5.2.1

5.3 Subsequent measurement of financial liabilities 5.3.1

5.4 Amortised cost measurement 5.4.1

5.5 Impairment 5.5.1

5.6 Reclassification of financial assets 5.6.1

5.7 Gains and losses 5.7.1

6 HEDGE ACCOUNTING 6.1.1

6.1 Objective and scope of hedge accounting 6.1.1

6.2 Hedging instruments 6.2.1

6.3 Hedged items 6.3.1

6.4 Qualifying criteria for hedge accounting 6.4.1

6.5 Accounting for qualifying hedging relationships 6.5.1

6.6 Hedges of a group of items 6.6.1

6.7 Option to designate a credit exposure as measured at fair value through profit or loss 6.7.1

6.8 Temporary exceptions from applying specific hedge accounting requirements 6.8.1

6.9 Additional temporary exceptions arising from interest rate benchmark reform 6.9.1

7 EFFECTIVE DATE AND TRANSITION 7.1.1

7.1 Effective date 7.1.1

7.2 Transition 7.2.1

7.3 Withdrawal of IFRIC 9, IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013) 7.3.1

APPENDICES

A Defined terms

B Application guidance

C Amendments to other Standards

APPROVAL BY THE BOARD OF IFRS 9 ISSUED IN NOVEMBER 2009

APPROVAL BY THE BOARD OF THE REQUIREMENTS ADDED TO IFRS 9 IN OCTOBER 2010

APPROVAL BY THE BOARD OF IFRS 9 FINANCIAL INSTRUMENTS ISSUED IN JULY 2014

APPROVAL BY THE BOARD OF AMENDMENTS TO IFRS 9:

Mandatory Effective Date IFRS 9 and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) issued in December 2011

IFRS 9 Financial Instruments (Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39) issued in November 2013

Prepayment Features with Negative Compensation (Amendments to IFRS 9) issued in October 2017

Interest Rate Benchmark Reform issued in September 2019

Interest Rate Benchmark Reform—Phase 2 issued in August 2020

FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION

• ILLUSTRATIVE EXAMPLES
• GUIDANCE ON IMPLEMENTING IFRS 9 FINANCIAL INSTRUMENTS
• APPENDIX
• Amendments to the guidance on other Standards

FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION

• BASIS FOR CONCLUSIONS
• DISSENTING OPINIONS
• APPENDICES TO THE BASIS FOR CONCLUSIONS
• A Previous dissenting opinions
• B Amendments to the Basis for Conclusions on other Standards

International Financial Reporting Standard 9 Financial Instruments (IFRS 9) is set out in paragraphs 1.1–7.3.2 and Appendices A–C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles. Terms defined in Appendix A are in italics the first time they appear in the IFRS. Definitions of other terms are given in the Glossary for International Financial Reporting Standards. IFRS 9 should be read in the context of its objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for Financial Reporting. IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies in the absence of explicit guidance.