CFM21810 - IFRS 9: Overview
Accounting approach
Prior to the introduction of IFRS 9, companies applying IFRS or FRS 101 had to apply the measurement and recognition criteria of IAS 39. Companies that adopted FRS 102 also had the option to account for financial instruments under IAS 39.
IFRS 9 introduces a new principles-based approach to the recognition and measurement of financial instruments, which is mandatory for companies applying IFRS or FRS 101 for periods of account beginning on or after 1 January 2018.
The main changes brought in by IFRS 9 are as follows:
- A single classification and measurement approach for financial assets that reflects the business model in which they are managed and the cash flow characteristics (including the removal of the requirement to separate embedded derivatives from financial assets) (see CFM21830 onwards).
- A forward-looking expected credit loss model for the recognition of loan losses that is applicable to all financial instruments subject to impairment testing (see CFM21890).
- A change to the accounting of ‘own credit’ to resolve the issue where gains were booked through profit or loss as a result of the value of a company’s own debt falling, where the debt was measured at fair value (see CFM21870).
- An improved hedge accounting model to better link the economics of risk management with its accounting treatment.