ED/2023/2 on the classification and measurement of financial instruments (proposed amendments to IFRS 9 and IFRS 7)

On March 21, 2023, the IASB publis­hed the draft amend­ment ED/2023/2 “Amend­ments to the Clas­si­fi­ca­tion and Mea­su­re­ment of Fi­nan­cial In­stru­ments (pro­po­sed amend­ments to IFRS 9 and IFRS 7)”. This pro­vi­des for draft amend­ments to the clas­si­fi­ca­tion of fi­nan­cial in­stru­ments.

The amend­ments re­sult from fin­dings of the Post-Im­ple­men­ta­tion Re­view of IFRS 9 with re­gard to clas­si­fi­ca­tion and mea­su­re­ment re­qui­re­ments.

The amend­ments pro­po­sed in ED/2023/2 re­late in par­ti­cu­lar to cla­ri­fi­ca­ti­ons and ex­am­ples on the clas­si­fi­ca­tion of fi­nan­cial as­sets (SPPI test). These re­late to the as­sess­ment of whe­ther con­trac­tual cash flows that ex­hi­bit va­ria­bi­lity de­pen­ding on en­viron­men­tal, so­cial and go­ver­nance as­pects (ESG-lin­ked fea­tures) re­pre­sent so­lely pay­ments of prin­ci­pal and in­te­rest (SPPI) on the prin­ci­pal amount out­stan­ding (this is cal­led the SPPI cri­te­rion).

In ad­di­tion, the draft con­ta­ins spe­ci­fics on the as­sess­ment of con­trac­tual terms and con­di­ti­ons that af­fect the amount, ti­ming and un­cer­tainty of con­trac­tual cash flows. Ac­cor­din­gly, the SPPI cri­te­rion is met if such con­tin­gent pay­ment claims de­pend so­lely on the debtor and not on ge­ne­ral mar­ket fac­tors. The pro­ba­bi­lity of the con­tin­gent event oc­cur­ring has no re­le­vance in the as­sess­ment.

Fur­ther­more, the draft con­cerns the in­tro­duc­tion of an op­tion - pro­vi­ded cer­tain con­di­ti­ons are met - to de­re­co­gnize fi­nan­cial lia­bi­li­ties that are sett­led th­rough elec­tro­nic trans­fer. Cla­ri­fi­ca­ti­ons are in­clu­ded on the ac­coun­ting tre­at­ment of such lia­bi­li­ties, gi­ving en­ti­ties an ac­coun­ting op­tion to de­re­co­gnize fi­nan­cial lia­bi­li­ties sett­led th­rough elec­tro­nic trans­fer be­fore the sett­le­ment date. The ex­er­cise of this op­tion is sub­ject to cer­tain con­di­ti­ons and re­qui­res the en­tity to ap­ply it con­sis­tently to all cash trans­fers made th­rough the same elec­tro­nic pay­ment sys­tem.

Fur­ther­more, the draft con­ta­ins cla­ri­fi­ca­ti­ons on the clas­si­fi­ca­tion of non-re­course fi­nan­cial as­sets and con­trac­tually lin­ked in­stru­ments.

Fi­nally, the fol­lo­wing ad­di­tio­nal dis­clo­sures on fi­nan­cial in­stru­ments are pro­po­sed un­der IFRS 7:

  • in­vest­ments in equity in­stru­ments de­si­gna­ted to be mea­su­red at fair va­lue for which chan­ges are pre­sen­ted in other com­pre­hen­sive in­come. The draft amend­ment re­qui­res dis­clo­sure of the ag­gre­gate fair va­lue of these in­stru­ments in­stead of the in­di­vi­dual fair va­lues of these in­stru­ments.
  • dis­clo­sures about the po­ten­tial im­pact of con­tin­gent events on the agreed prin­ci­pal and in­te­rest pay­ments. The dis­clo­sures should be made for each class of fi­nan­cial as­sets and fi­nan­cial lia­bi­li­ties mea­su­red at amor­ti­zed cost or for fi­nan­cial as­sets mea­su­red at fair va­lue with chan­ges re­co­gnized in other com­pre­hen­sive in­come.

The com­ment pe­riod ends on July 19, 2023, and the ef­fec­tive date is to be de­ter­mi­ned af­ter pu­bli­ca­tion.

Note: The draft amend­ment is avail­able on the IFRS Foun­da­tion’s web­site at the fol­lo­wing link [­po­ses-nar­row-scope-amend­ments-to-clas­si­fi­ca­tion-and-mea­su­re­ment-re­qui­re­ments-for-fi­nan­cial-in­stru­ments/].

We have al­re­ady pre­sen­ted an over­view of the re­sults of the Post-Im­ple­men­ta­tion Re­view of IFRS 9 on clas­si­fi­ca­tion and mea­su­re­ment in edi­tion 1/2023 of no­vus IFRS.

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