International Financial Reporting Standard 9

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The International Financial Reporting Standard 9 - Financial Instruments ( IFRS 9 ) is an accounting regulation of the IASB .

introduction

The International Financial Reporting Standard 9 Financial Instruments ( IFRS 9 ) is an international accounting standard ( IFRS ) of the International Accounting Standards Board (IASB), which is intended to regulate the recognition and valuation of financial instruments . The aim is to completely replace the currently valid International Accounting Standard 39 . IFRS 9 deals with three major topics that were developed in three phases. That is why they are still called that way. Phase 1 deals with the subject of classification and valuation of financial instruments, phase 2 with the subject of impairment , and phase 3 with accounting for hedge transactions .

development

The final version of IFRS 9 was published on July 24, 2014 and will replace the previously applicable IAS 39 when it was first applied on January 1, 2018.

The IASB started the project on March 19, 2008 with the dispatch of the discussion paper Reducing Complexity in Reporting Financial Instruments . Comments could be submitted until September 19, 2008. The IASB then decided to divide the project into the three phases mentioned.

For phase 1 , a first draft for accounting for assets was published in November 2009, followed by the requirements for liabilities in October 2010. A few adjustments followed until the release of the final version, essentially another category was added: fair value through other comprehensive income .

Phase 2 began with the publication of a discussion paper in March 2008, the v. a. set the goal of reducing complexity. Following a request for an assessment of the feasibility, a draft was published on November 5, 2009, which made the expected cash flows the starting point for the impairment. There should be a change from an incurred loss to an expected loss model. On January 31, 2011, the IASB and FASB published a supplementary document that made minor adjustments in response to comments on the draft. Finally, on March 7, 2013, the final draft followed, which could be publicly commented again. This is the first time that all instruments have been categorized into three levels. Based on the comments, the requirements were finalized in February 2014 and finally published with the finished standard in July 2014.

The aim of phase 3 was to better reflect the activities in the area of ​​risk management in the accounting. The complexity of the old rules should also be reduced. The first proposals for simplification were published by the IASB in March 2008. A first draft followed in December 2010, which was discussed internally until September 2011 after the comment phase. A detailed review process followed until phase 3 was published in November 2013. No further changes were made until the entire standard was published.

Finally, the finished standard was published on July 24, 2014. Like all (finished) IFRS standards, this is not publicly available, but can only be called up by IFRS Foundation subscribers . This is a special feature: every other law in the EU or in Germany is accessible on the Internet.

Parallel to the three phases of IFRS 9, the IASB started a project called Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging ' Accounting for Dynamic Risk Management: A Portfolio Revaluation Approach to Macro Hedging' . A discussion paper was published on this topic in April 2014. Comments could be submitted until October 17, 2014. Since this project has not yet been completed and concerns the same topic as phase 3 of IFRS 9, the banks are free to apply the new rules on hedge accounting or to stick to the old rules of IAS 39. That could save you another change within a very short time.

In the EU , the IFRS standards only become mandatory through an endorsement by the Accounting Regulatory Committee (ARC), which is made up of two representatives from each of the 27 EU member states - usually from the respective ministries of justice and economics. The EFRAG (European Financial Reporting Advisory Group) makes a recommendation beforehand. The final endorsement of IFRS 9 by the EU took place on November 22, 2016.

content

In the following, the content of the standard is presented, divided into three phases. Since this is not (legally) publicly accessible, reference is primarily made to the overview published by the IASB.

Phase 1: classification and evaluation

Overview of the classification rules

The classification of financial assets now follows simple rules. Two criteria are decisive: the business model (should the financial instrument be held or sold?) And the type of payment flows (is it only about repayment of the nominal value or interest?). These criteria determine whether the instrument at amortized cost or after the fair value ( fair value should be assessed). In addition, the IASB grants the option to measure the instrument at fair value under certain conditions. The graphic next to it provides an overview.

Financial liabilities are normally to be valued at amortized cost. Financial liabilities from derivatives and trading portfolios, as well as financial instruments for which the passive fair value option (IFRS 9.4.2.2) was exercised (IFRS 9.4.2.1), are absolutely excluded from this. These stocks are to be measured at fair value through profit or loss.

Phase 2: Depreciation

The impairment model of IFRS 9 is based on the assumption that the expected loss is shown.

scope of application

Under IFRS 9, the application of the same impairment model is provided for the following financial instruments:

  • Financial assets that are valued at amortized cost;
  • financial assets that are required to be measured at fair value with changes in value recorded in other comprehensive income (see below);
  • Loan commitments, under which there is a present obligation to issue a loan (unless the commitments were measured at fair value with changes in value recognized in profit or loss);
  • Financial guarantees to which the regulations of IFRS 9 are applied (except those that are measured at fair value with the recognition of changes in value in profit or loss for the period);
  • Lease receivables within the scope of IAS 17 Leases ;
  • active contract items (contract assets) according to IFRS 15 Revenue from Contracts with Customers (i.e., rights to receive consideration as a result of a transfer of goods or services).

General approach

With the exception of financial assets that are already impaired upon acquisition (see below), expected losses must be recognized with an amount equal to:

  • the "expected 12-month loss" (present value of the expected payment defaults resulting from possible default events within the next 12 months after the reporting date); or
  • the total loss expected over the remaining term of the instrument (present value of the expected payment defaults as a result of all possible default events over the remaining term of the financial instrument)

The loss recording of the total expected loss over the remaining term must be carried out for instruments whose default risk has increased significantly since receipt. The same applies regardless of an increase in the default risk for trade receivables and active contract items that do not constitute a financing relationship in accordance with IFRS 15.

In addition, a company can exercise an accounting option to always record the entire expected loss over the remaining term for all active contract items and / or trade receivables that establish a financing relationship in accordance with IFRS 15. The same option also applies to lease receivables.

For all other financial instruments, the expected losses are recorded in the amount of the expected 12-month loss.

Significant increase in default risk

With the exception of financial assets that are already impaired upon acquisition (see below), loss recognition for financial instruments is made at the present value of the expected loss over the remaining term if the default risk of the instrument has increased significantly since acquisition. One option applies to instruments whose default risk is “low” on the reporting date: In this case, it can be assumed that the default risk has not increased significantly since receipt.

In the standard, the default risk is described as "low" if there is only a low risk of default, the debtor is highly capable of making his contractually agreed payments, and adverse changes in the economic or business environment in the long term, the ability of the Debtor can, but not have to, make his contractually agreed payments. A rating of the quality “investment grade” is described in the standard as a possible indicator of a low default risk.

The assessment of whether the default risk has increased significantly is based on an increase in the default probability since receipt. In accordance with the standard, a company can use various approaches to assess whether the risk of default has increased significantly (provided that the respective approach otherwise meets the requirements). An approach can meet the requirements even if it does not include a parameter expressly designated as the probability of failure. The application guidelines contain a number of factors which a company can use in its assessment. While the assessment of whether the risk of default has increased significantly has to be made at the level of the individual instrument, not all of the factors mentioned are necessarily available for individual instruments. In such cases a company conducts the assessment on the basis of appropriately formed groups of instruments or parts of portfolios.

The regulations also contain the rebuttable presumption that the default risk has increased significantly since the instrument was received if contractual payments are overdue for more than 30 days.

The regulations of IFRS 9 provide for a return to the expected 12-month loss if the default risk has initially increased significantly since the instrument was added, but the increase reverses again in later periods (i.e. if from a cumulative point of view the default risk is not significantly higher than with access).

Financial assets that are already impaired on acquisition

There is a separate treatment for instruments that already show objective evidence of impairment upon receipt (i.e. when they are issued or acquired). For these assets, only changes in the expected losses at the time of acquisition are recognized in risk provisioning over the remaining term, affecting income or expenses. As a result, there is an impairment gain for such assets if the future cash flows of the asset exceed the estimated cash flows on acquisition.

Financial assets with objective evidence of impairment

According to IFRS 9, a financial asset has objective evidence of impairment if one or more events have occurred that show a significant impact on the expected future cash flows of the financial asset. This includes observable data that became known to the owner of the instrument through the following events:

  • Significant financial difficulties of the issuer or the debtor;
  • a breach of contract such as default or delay in interest or repayment payments;
  • Concessions that the lender makes to the borrower for economic or contractual reasons in connection with the borrower's financial difficulties, but would otherwise not grant;
  • an increased likelihood that the borrower will go into bankruptcy or other reorganization proceedings;
  • the disappearance of an active market for that financial asset due to financial difficulties;
  • the acquisition or issuance of a financial asset at a high discount that reflects the credit losses incurred.

Basis for estimating expected losses

In accordance with IFRS 9, the expected losses must always represent an undistorted and probability-weighted amount, which was determined by assessing a number of possible scenarios and taking into account the time value of money. In addition, a company should take appropriate account of all available information about past events and current conditions and take appropriate and available forecasts of future economic conditions into account when assessing expected losses.

In the standard, expected losses are defined as the weighted average of the loan defaults, weighting with the respective probability of occurrence for the defaults. Although a company does not have to consider every conceivable scenario, at least the estimate must always take into account the possibility of failure and the possibility of non-failure, even if the most likely scenario is non-failure.

In order to estimate all expected losses over the remaining term, a company must make an estimate for the risk of default that extends over the entire remaining term of the instrument. In contrast, the expected 12-month loss extends to the total defaults over the remaining term that are associated with a default event within the next twelve months from the reporting date - again weighted by the probability of occurrence.

An entity must take due account of all available information (that is, information that is available as of the reporting date). This applies to information provided that it does not involve disproportionate costs or efforts (including information already available for financial reporting).

To apply the impairment model to loan commitments, a company must assess the risk that the committed loan will default. In contrast, the application of the model to financial guarantees leads a company to estimate the risk of default of the guaranteed debtor.

A company can avail of practical facilities for loss estimation if they are in accordance with the basic requirements of the standard. For example, a value adjustment table can be used as a basis for trade receivables. Such a table can, for example, determine the expected losses over the remaining term as a flat-rate percentage depending on the length of the overdue period.

In order to reflect the time value of money, the expected losses must be discounted to the reporting date using the effective interest rate (or an approximation thereof) determined on receipt of the instrument. For instruments that are impaired when they are added, however, an adjusted interest rate is to be used, which already takes into account the expected losses of the instrument upon addition. This is a difference to the effective interest rate, which results from the future contractual cash flows without taking into account expected defaults.

Expected losses on undrawn loan commitments are discounted using the effective interest rate (or an approximation thereto) that would result if the instrument were applied that results from the drawing of the loan commitment. If the effective interest rate for a loan cannot be determined, the discount rate should reflect the current market view of the time value of money and the specific risks with regard to cash flows. However, this only applies if and to the extent that these risks have not already been included as a discount in the discount rate. The same approach is intended to be used for financial guarantees.

identification card

Although interest income must always be shown as a separate item, how it is determined differs depending on the current status of the financial assets with regard to the impairment model. In the case of a financial asset that does not already show objective evidence of impairment upon receipt and for which there is no objective evidence of impairment as of the reporting date, the interest income is determined by applying the effective interest rate to the gross book value.

The interest income from financial assets that do not show objective evidence of impairment at the time of acquisition, but later show objective evidence of impairment, is determined by applying the effective interest rate to the amortized cost. These result from the gross book value minus the risk provision.

In the case of financial assets that show objective evidence of impairment upon receipt, the interest income is determined by applying an adjusted interest rate to the amortized cost. This adjusted interest rate is the interest rate with which the cash flows expected upon receipt (expressly taking into account the expected payment defaults and the contractual provisions) are discounted to the book value upon receipt.

Subsequent amendments from IFRS 9 to IAS 1 require that impairment losses, including reversals of impairment losses and income from changes in estimates in the case of financial assets with an objective indication of impairment, are reported as a separate item in the statement of comprehensive income upon addition.

Phase 3: hedge accounting

The shortcomings of the old standard existed v. a. in the limitation of the instruments that could be hedged ( hedged items ). These restrictions are now significantly relaxed. In particular, risks that did not originate from pure financial transactions (e.g. raw material prices) could not be hedged. So the relaxation is v. a. relevant for non-banks, because with such institutions such risks are likely to outweigh the pure financial risks.

However, IFRS 9 does not replace the regulations for a portfolio fair value hedge against interest rate risks in accordance with IAS 39. The part of the IFRS 9 project originally relating to this topic was published as a separate project on the IASB agenda under the heading "Macro Hedges" pursued, as this involved higher time requirements and a short-term conclusion of the project was not expected. As part of the so-called Due Process, a discussion paper was published for this project in April 2014: Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging. Against this background, there is the option of continuing to apply the regulations on portfolio fair value hedge against interest rate risks or even to map hedging relationships in accordance with the general regulations of IAS 39.

Web links

Individual evidence

  1. ↑ IFRS.ORG: IASB completes reform of financial instruments accounting ( Memento of the original from 23 August 2014 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  2. ↑ Reducing Complexity in Reporting Financial Instruments ( Memento of the original dated December 10, 2010 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  3. ^ Financial Instruments — Phase I: Classification and Measurement . IASB. Archived from the original on June 13, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  4. ^ Financial Instruments: Classification and Measurement . IASB. Archived from the original on December 30, 2015. Info: The archive link was automatically inserted and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  5. ↑ Fair Value Option for Financial Liabilities . IASB. Archived from the original on May 15, 2015. Info: The archive link was automatically inserted and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  6. ↑ Classification and Measurement: Limited Amendments to IFRS 9 . IASB. Archived from the original on April 2, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  7. ^ Financial Instruments — Phase II: Impairment . IASB. Archived from the original on June 13, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  8. ↑ Discussion Paper: Reducing Complexity in Reporting Financial Instruments . IASB. Archived from the original on April 8, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  9. ↑ Request for Information ('Expected Loss Model'): Impairment of Financial Assets: Expected Cash Flow Approach . IASB. Archived from the original on December 27, 2015. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  10. ↑ Exposure Draft ED / 2009/12: Financial Instruments: Amortized Cost and Impairment . IASB. Archived from the original on March 19, 2013. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  11. ↑ Supplement to ED / 2009/12: Financial Instruments: Impairment . IASB. Archived from the original on December 27, 2015. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  12. ↑ Exposure Draft ED / 2013/3: Financial Instruments: Expected Credit Losses . IASB. Archived from the original on August 7, 2015. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  13. ↑ Financial Instruments — Phase III: Hedge Accounting . IASB. Archived from the original on June 13, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  14. ↑ Discussion Paper: Reducing Complexity in Reporting Financial Instruments . IASB. Archived from the original on April 8, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  15. ↑ Exposure Draft ED / 2010/13: Hedge Accounting . IASB. Archived from the original on December 24, 2015. Info: The archive link was automatically inserted and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  16. ↑ IASB completes important steps in reform of financial instruments accounting . IASB. Archived from the original on June 14, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  17. ↑ Access via eIFRS
  18. ↑ Financial Instruments: Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging . IASB. Archived from the original on June 13, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  19. ↑ Discussion Paper: Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging . IASB. Archived from the original on November 10, 2016. Info: The archive link was automatically inserted and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 13, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  20. ↑ Participants and resolutions ( Memento of the original from January 19, 2013 in the Internet Archive ) Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. @1@ 2Template: Webachiv / IABot / ec.europa.eu
  21. ↑ See Commission Regulation (EU) 2016/2067 of November 22, 2016 amending Regulation (EC) No. 1126/2008 for the adoption of certain international accounting standards in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of Council on International Financial Reporting Standard 9 (Text with EEA relevance) , accessed December 18, 2017
  22. ↑ Project Summary: IFRS 9: Financial Instruments . IASB. Archived from the original on April 9, 2016. Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice. Retrieved June 14, 2016. @1@ 2Template: Webachiv / IABot / www.ifrs.org
  23. ↑ IFRS 9. Accessed February 20, 2017 .
  24. ↑ IFRS 9. Accessed February 20, 2017 .