The new hedge accounting model under IFRS 9 will have a significant impact on non-financial entities. While the new hedge accounting model has a less cumbersome approach compared to IAS 39, it has significant disclosure requirements that will need close review by entities.
In July 2014, the International Accounting Standards Board (IASB) promulgated the final version of IFRS 9: Financial Instruments to replace IAS 39: Financial Instruments and superseding all previous versions of IFRS 9. IFRS 9 is effective January 1, 2018.
IFRS 9 introduces a new Fair Value Through Other Comprehensive Income (FVTOCI) model for the classification of financial assets. Financial liabilities designated as at Fair Value Through Profit or Loss (FVTPL) using the fair value option that have fair value changes attributable to changes in the entity’s own credit risk will be presented in Other Comprehensive Income (OCI) instead of presentation through Profit or Loss, unless such presentation would introduce an accounting mismatch. In such a case, the fair value change will be presented in Profit or Loss.
The new impairment model is based on a forward-looking Expected Credit Loss (ECL) approach to be applied to:
- Debit instruments held and measured at amortized cost or FVTOCI
- Trade receivables
- Leases receivables within the scope of IAS 17
- Contract assets within the scope of IFRS 15
- Loan commitments or guarantees
Loan loss provisions will be measured in one of the following two ways:
- 12 month expected loss provision
- Lifetime expected loss provision
When an entity recognizes a trade receivable, lease receivable or contract asset (in accordance with IFRS 15); a day-one loss provision will be recognized in Profit or Loss. Loss provisions for trade receivables and contract assets that do not contain a significant financing component will be measured at lifetime expected loss. In cases where there is a significant increase in credit risk, the loss provision will be updated from a 12-month expected loss measurement to a Lifetime expected loss measurement.
IFRS 9 has a rebuttable presumption that a 30-day past due receivable is an indication of a significant increase in credit risk. Entities will be required to provide sufficient support to rebut this presumption.
How we can help
Our team offers a broad range of experience and deep technical expertise in IFRS implementation and complex accounting solutions. Our professionals have been delivering world class IFRS implementations and advisory services since 2009 in Canada and around the world. We can help your business with planning, analysis, implementation, and ongoing support related to IFRS 9 and other unique accounting solutions that your business may need.
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