IFRS 9 Financial Instruments brings fundamental change to financial instrument accounting as it replaces IAS 39 Financial Instruments: Recognition and Measurement. Our specialists explain the new expected credit loss model for financial asset impairment, the impact of the business model on accounting and the consequences of fewer categories for assets. There are a number of decisions and choices to be made at transition to the new standard but some good news: hedge accounting rules have been eased. Banks and financial institutions are most affected but corporates need to consider the new requirements as well.
Our guidance on IFRS 9 follows the three main aspects of the standard; classification and measurement of financial assets, applying the expected credit loss model to financial assets and hedge accounting:
Classification and measurement
IFRS 9 will require financial assets to be measured at amortised cost or fair value. Fair value changes will be in profit or loss or taken to OCI with no recycling. Fair value through OCI is a consequence of the business model for some assets but an irrevocable election at initial recognition for other assets. This may be the least complex area of the new standard but it there will be significant impacts. Our specialists share their insights in our suite of publications, videos and tools.
Moving to an expected credit loss model is a major challenge, particularly for banks and other lendors. Our specialists share their insights and clarify the complicated requirements this long anticipated area of IFRS 9. If you're looking for an overview or a deep dive on a technical issue, our suite of publications, videos and frequently asked questions should help you.
Hedge accounting under IFRS 9 will be more attractive than under current guidance. And it may be easier to comply with the requirements although easier' is a relative term. Hedge accounting is still optional but a wider range of instruments qualify as hedging instruments, effectiveness testing is simplified and more things can be hedged. Interested? Our specialists share their insights on how hedge accounting under IFRS 9 will work.
Revenue recognition under lincense agreements gets more complex
Companies that earn income from licensing their intellectual property should be aware that the new revenue standard, IFRS 15, 'Revenue from contracts with customers', has much more guidance on how to account for licence income than the existing standard. The new standard introduces a single model for revenue recognition and applies this model to licences. There are two types of licence: a right to use intellectual property; and a right to access intellectual property. Our specialist considers how these different licences are accounted for under IFRS 15.
Leasing is an important financial solution used by many organisations. It enables companies to use property, plant, and equipment without needing to incur large initial cash outflows. Under existing rules, lessees generally account for lease transactions either as off-balance sheet operating or as on balance sheet finance leases. The new standard requires lessees to recognise nearly all leases on the balance sheet which will reflect their right to use an asset for a period of time and the associated liability to pay rentals. The lessor’s accounting model largely remains unchanged.
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The IFRS for SMEs is a self-contained standard of around 230 pages, tailored to the needs of smaller businesses. Many of the principles of full IFRS for recognising and measuring assets, liabilities income and expense have been simplified, and the number of required disclosures have been simplified and significantly reduced. Where a topic is not covered in the IFRS for SMEs, there is no mandatory requirement to refer to full IFRS.
The IASB does not mandate adoption of the standard and it is up to individual countries to permit, require or prohibit its adoption locally.
New accounting standards have been finalised by the International Accounting Standards Board for Financial Instruments (IFRS 9), Revenue (IFRS 15) and Leases (IFRS 16). They come into effect in 2018/19. Our IFRS Standardsbearer report highlights where the new standards may affect your existing IFRS financial statements and gives your implementation projects a fast start.
The PwC IFRS Manual of Accounting is our collected insights on the application of IFRS, the language of the global capital markets. IFRS requires professional accountants and preparers to make judgements when applying the standards. We share the practical IFRS knowledge of the PwC network with those charged with preparing, auditing, enforcing and perhaps most importantly using IFRS financial statements.