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 [https://www.ifrs.org/news-and-events/news/2023/03/iasb-proposes-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.
