Background

In 2022, the IASB concluded its post-implementation review of the classification and measurement requirements of IFRS 9 Financial Instruments. In general, the IASB found that preparers can apply the requirements consistently. However, the IASB identified some requirements that would benefit from clarification to improve their understandability. The IASB therefore proposed all amendments in a single exposure draft (ED).

The proposed amendments

The proposed amendments in exposure draft IASB/ED/2023/2 Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7) are:

Derecognition of a financial liability settled through electronic transfer

The IASB proposes amendments to the application guidance of IFRS 9 to permit an entity to derecognise a financial liability that is settled using an electronic payment system even if cash has not yet been delivered by the entity if specified criteria are met. An entity that elects to apply the proposed derecognition option would be required to apply it to all settlements made through the same electronic payment system.

Classification of financial assets

Contractual terms that are consistent with a basic lending arrangement

The IASB proposes amendments to the application guidance of IFRS 9 to provide guidance on how an entity can assess whether contractual cash flows of a financial asset are consistent with a basic lending arrangement.

Assets with non-recourse features

The IASB proposes amendments to enhance the description of the term ‘non-recourse’. Under the amendments, a financial asset has non-recourse features if an entity’s contractual right to receive cash flows is limited to the cash flows generated by specified assets both over the life of the financial asset and in the case of default. In other words, throughout the life of the financial asset, the entity is primarily exposed to the specified assets’ performance risk rather than the debtor’s credit risk.

Contractually linked instruments

The IASB proposes to clarify the description of transactions containing multiple contractually linked instruments that are in the scope of IFRS 9.

Disclosures

Investments in equity instruments designated at fair value through other comprehensive income

The IASB proposes amendments to IFRS 7 to require disclosure of an aggregate fair value of these equity instruments rather than the fair value of each instrument at the end of the reporting period and the changes in fair value presented in other comprehensive income during the period.

Contractual terms that could change the timing or amount of contractual cash flows

The IASB proposes to require the disclosure of contractual terms that could change the timing or amount of contractual cash flows.

Effective date, transition and comment period

The ED does not specify an effective date for the amendments in the ED. The effective date will be set at a later point.

The IASB proposes to require an entity to apply the amendments to IFRS 9 retrospectively.

The comment period for the ED ends on 19 July 2023.

More information about ED can be found in iGAAP in Focus from March 2023.

Sources:

www.iasplus.com

iGAAP in Focus — Financial Reporting: IASB proposes amendments to the classification and measurement requirements of financial instruments