New ifrs 9

A very timely topic!

New IFRS 9 is the International Financial Reporting Standard (IFRS) issued by the International Accounting Standards Board (IASB) in July 2014, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard aims to improve the accounting for financial instruments by providing a more principles-based approach to measuring and recognizing financial assets and liabilities.

Key changes in New IFRS 9:

  1. Expected Credit Loss (ECL) model: The standard introduces a new ECL model, which replaces the incurred loss model in IAS 39. The ECL model requires entities to recognize expected credit losses over the lifetime of a financial instrument, rather than waiting for a loss to be incurred.
  2. Classification and measurement: The standard introduces a new classification and measurement framework for financial instruments, which is based on the entity's business model and the contractual cash flow characteristics of the instrument.
  3. Hedge accounting: The standard simplifies hedge accounting by introducing a more principles-based approach, which allows entities to hedge a broader range of risks and to recognize the effectiveness of hedges more easily.
  4. Impairment: The standard introduces a new impairment model, which requires entities to recognize impairment losses when the carrying amount of a financial asset exceeds its recoverable amount.

Key benefits of New IFRS 9:

  1. Improved financial reporting: The standard provides a more consistent and transparent approach to accounting for financial instruments, which improves the comparability of financial statements across entities and industries.
  2. Better risk management: The standard's ECL model and hedge accounting requirements help entities to better manage their risk exposure and to recognize the impact of changes in market conditions on their financial performance.
  3. Simplified accounting: The standard's simplified hedge accounting requirements and the elimination of the "four-asset" classification (debt, equity, liability, and asset) simplify the accounting for financial instruments.

Key challenges of New IFRS 9:

  1. Complexity: The standard's new ECL model and impairment requirements can be complex and require significant judgment and estimation.
  2. Data requirements: The standard requires entities to maintain detailed data on their financial instruments, which can be time-consuming and costly to collect and maintain.
  3. Transition: The standard's transition requirements can be complex, and entities may need to restate their financial statements for prior periods.

Overall, New IFRS 9 is a significant change to the accounting for financial instruments, and entities will need to carefully consider the implications of the standard on their financial reporting and risk management practices.