Flashcards IFRS 9
Scope exclusions of IFRS 9 ?
1) IFRS 2 share based payments
2) IFRS 3 business combinations - incl qualifying related forward contracts
3) IFRS 10/IAS28/IAS27
4) IFRS 15
5) IFRS 16 leases - except impairment + derecognition
6) IFRS 17 - insurance contracts
7) IAS 19 benefit plans
8) IFRS 32 equity instr
9) IFRS 37 - reimbursement assets
10) Loan commitments unless they can be settled net in cash =fin instr - impairment provisions apply
11) Instruments to buy non-financial asset
if physical delivery is expected
that is not for sale shortly upon delivery (trading)
Included, however:
Written option for non-financial items that can be settled in cash or equiv or are readily convertible to cash
IFRS 9 - when are fin assets recognised ?
1) On committment date when entity becomes party to contract
- Derivatives
- Unconditional rights/obligations
2) Regular way transaction :
- trade date OR
- settlement date
3) Firm committments to purchase/sell
- Outside scope of IFRS 9 :
when one of the parties has performed under the agreement
- Within scope of IFRS 9 (=derivative) :
upon committment date
IFRS 9 - Regular way transactions: definition ? what are the options ?
A purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
Options :
1 - Trade date accounting
2 - Settlement date accounting
IFRS 9 - Settlement date accounting treatment:
for a PURCHASE
traded before and settled after reporting period end
at Amort cost, FVTOCI, FVTPL ?
1 Trade date : no entries
2 Period end :
a-FVTPL/FVTOCI :
receivable asset or liab TO PL or OCI for FV change
since trade date.
b-Amort cost : No entry
3 Settlement date : asset TO receivable + cash
IFRS 9 - Settlement date accounting treatment:
for a SALE
traded before and settled after reporting period end
at Amort cost, FVTOCI, FVTPL ?
1 Trade date :
a-FVTPL/FVTOCI :
adjustment of carrying amount to FV
b-Amort cost : no entry
2 Period end : no FV adjustments no entries
3 Settlement date : derecognition of asset against cash
IFRS 9 - criteria for asset de-recognition ?
1 - Level -consolidated or separate FS
2 - PART or ALL of the asset
3 - NO RETAINED CASHFLOWS > DeRecognise in full
- No right to receive further cash flows from asset OR
- Obligation to transfer cashflows to third party AND
a) No obl to remit any uncollected amounts
b) No selling, pledging of asset
c) Remittance w/o material delay
d) Remit ev short term interest
4 - PARTIALLY RETAINED CASHFLOWS
- Risks + Reward substantially :
a) Transferred ? DeRecognise
b) Retained ? NO DeRecognition
c) Control fully transferred ?
a) Yes =>DeRecognition
b) No =>Partial DeRecognition
(continuing involvement)
IFRS 9 - criteria for transfer of control for derecognition?
Control was transferred only when transferee purchaser has
- unilateral + practical ability
- to sell asset in its entirety
- w/o restrictions
Practical ability eg=there is an active market for the item and can be repurchased if return is required
In all other cases, control is RETAINED
IFRS 9 - criteria for transfer of risk & rewards of ownership ?
Transfer of significant variability in amount + timing of cash flows
Examples substantially transferred :
1) unconditional sale
2) sale w/repurchase at FV at time of purchase
3) sale w/put/call option deeply out of money
Examples substantially retained :
1) sale w/repurchase at FV at fixed price
2) security lending agreement
3) sale w/total return swap transferring back the risks&rewards
4) sale w/deep into the money put/call option
5) sale of shortterm AR w/credit risk guarantee likely to occur
IFRS 9 - Accounting treatement
- for derecognition
- no dercognition
- continued involvement
1 Asset qualifies for DeRecognition :
- dereognise asset in entirety
- record NEW asset for cashflows retained
2- No DeRecognition :
a- continue recognising asset in entirety
b- no offset of assets + liabs or income + expenses
c- record liability for amounts received:
(i) Written Put/purchased call option :
Amort cost :
liab = cash received
amortised to exercise price
FV-call option :
asset FV/option strike price
less option time value
if option money =
in/at : liab = exercise price
out : liab = asset FV
FV-written put :
option strike price
plus option time value
Asset FV limited to option strike price !
3- Continued Involvement :
- Partial DeRecognition of Asset
- Guarantee :
asset/liab for guaranteed amt
+ liab for FV of guarantee recognised over time
IFRS 9 - criteria for De-recognition of financial liabilities
1- when extinguished, i.e. cancelled, expired, discharged
2-exchange with lender of debt instruments with substantially different terms
3- substantial modification of a contract :
a- if PV under modified terms @prior disct rate is 10% or more
b- risk exposure is significantly different
(eg fixed/variable interest rate changed to leveraged interest rate)
IFRS 9 - Criteria Held for trading of Financial Liabilities
1 - repurchasing in near-term
2 - part of portfolio w/short-term profit taking
3 - derivatives
IFRS 9 - Contractual cash flow test - what are the criteria ?
1-Test conducted individual level
2-Provides only principle + interest
3-Interest is only for
(i) time value,
(ii) profit,
(iii) admin,
(iv) credit + liquidity risk,
eg
-fixed rate,
-floating rate that changes in line with selected rate renewal frequency,
-linked to index related to related inflation/market.Fails test
IFRS 9 - Business Model test - what are the criteria ?
1-Test conducted at Portfolio level
2-Managed w/objective to hold to maturity + collect contractual cashflows only
3-How key mgmt manages business NOT intentions
4-Criteria :
a) held to maturity or
b) sales infrequent (even w/sign value) or
c) sales of insignificant aggregate value or
d) sales close to maturity + diff w/maturity amount is insignificant
IFRS 9 - What Financial assets are measured at amortised cost ?
1-Contractual cash flow test
2-Business model test contr cash flow only
3-FVTPL Option not selected
IFRS 9 - What Financial assets are measured at FVTPL mandatorily ?
1-FI held for trading
2-Contractual cash flow test NOT met and
FVTOCI option for equity instr not selected
IFRS 9 - What financial asset are measured at FVTOCI ?
1) Cashflow test met + Business model test :
contr cashflow + sales + FVTPL option NOT designated
2) Equities not held for trading
+ FVTOCI option designated
IFRS 9 - How are financial asset measured at initial recognition ?
1-Trade receivables w/o sign financing : at transaction value
2-All other :
FV + incr. transaction cost (FVTOCI or Amort Cost)
Normally transaction price = FV,
Exceptions :
- if not traded at FV (unit of acct, interco, forced, etc)
- includes comp for something else than Fin Instr
(eg loan w/no interest - FV = discounted value)
3-Acctg treatment of diff w/FV :
FV level 1 or 2 w/only observable inputs => PL
FV level 3 => FV is adjusted
IFRS 9 - When are financial liability measured at FVTPL ?
At initial recognition
Irrevocable/No subs assessment
1) held for trading
2) designated at FVTPL provided :
(i) avoidance of accounting mismatch
(ii) group of F assets/liabs as a group
(iii) with embedded derivatives
3) liabs from continuing involvement from trsfrd assets
4) fin guarantee contracts
5) commitments to provide loan below market rates
6) derivatives
IFRS 9 - accounting treatement of transaction (acquisition) cost ?
1) FVTPL -> expensed
2) FVTOCI -> added to FV at initial recognition
- > ignored at subsequent FV measurement to OCI
3) Amort cost -> added to FV at initial recognition