IFRS 9

Question 1

Why was IFRS 9 introduced

Answer 1

IAS39 which IFRS 9 replaced led to inconsistency making comparability across companies impossible and also included complex rules

Question 2

How to decide on appropriate classification

Answer 2

Understand the business model specific to the company

Retail Bank = Amortised Cost
Investment Bank = Fair Value Through the P&L

Question 3

How does IFRS9 seek to better deal with Impairment

Answer 3

Proactive system of viewing impairment which aims to smooth impairment over life rather than all in year of disposal / impairment

Model based around three key categories:

• No sign of impairment forecast for next 12 months
• Significant deterioration in quality seen
• Objective evidence of impairment

Question 4

Two types of hedging

Answer 4

Cash flow hedging
- Gain/losses released to the P&L when business problem addressed
Fair value hedging
- Movement on the asset/liability, together with the derivative taken to the P&L immediately

Question 5

How does IFRS 9 improved Hedge reporting

Answer 5

Prevents artificial cessation of Hedge accounting by removing the 80-125% criteria. This reduces volatility and properly represents the business’s risk management

Only needs to prove justification of the hedge to solve business problem qualitatively

Question 6

When does IFRS 9 become effective for all companies

Answer 6

For accounting periods starting 1 Jan 2018 onwards