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Financial Instruments: Classification and Measurement: Limited Amendments to IFRS 9


In November 2011, the IASB decided to consider making limited amendments to IFRS 9 in order to address specific application issues and concerns raised by constituents regarding the implementation of IFRS 9.

Furthermore, the IASB wanted to reconsider the classification and measurement requirements in IFRS 9 in light of the future IFRS on insurance contracts and to achieve closer alignment of the IASB's and the FASB's classification and measurement models.

The IASB agreed that any amendments should be as targeted as possible, this to minimise the cost and disruption to those who are already applying IFRS 9 or have prepared themselves to apply this standard. Consistently, the scope of the project was limited to consider the following topics:


  1. The contractual cash flows characteristics assessment of financial assets;

  3. The need for bifurcation of financial assets and, if pursued, the basis for bifurcation; and

  5. The basis and the scope of a possible third classification category for debt instruments measured at fair value through other comprehensive income.


On 31 December 2012, EFRAG issued its Draft Comment Letter on the ED.

In April 2013 EFRAG submitted its comment letter on the ED to the IASB.

In its comment letter, EFRAG welcomes the IASB's decision to consider making limited amendments to IFRS 9 and appreciates the effort made to address accounting mismatches arising from the application of different measurement models to financial assets and insurance liabilities.

However, EFRAG is concerned that there are still financial assets that would not pass the contractual cash flow characteristics assessment, for different reasons, despite the fact that an amortised cost or fair value through other comprehensive income (FV-OCI) measurement would provide more useful information. As many of these financial assets are held to collect contractual cash flows, we believe that measurement on a basis other than fair value through profit or loss (FV-PL) would result in better financial reporting. Accordingly, EFRAG recommends the IASB to introduce bifurcation into IFRS 9 for financial assets, based on an approach consistent with the contractual cash flow characteristics assessment. This would ensure measuring financial assets that fail the contractual cash flow characteristics assessment more consistently with how entities manage them; however, entities would be able to elect to measure these financial assets in their entirety (at the entity-level or on a portfolio-level) at FV-PL due to excessive cost of bifurcation.

In addition, EFRAG also believes the IASB should clarify that the definition of interest in IFRS 9 is not meant to be inconsistent with how entities determine interest of financial assets in practice.

With regards to the introduction of an additional measurement category in IFRS 9, EFRAG believes that the Exposure Draft fails to clearly identify the business model underlying measurement at FV-OCI. In addition, it does not fully address the concerns raised by insurance companies, which was one of the reasons for reopening the classification and measurement requirements in IFRS 9.

EFRAG believes that measurement at FV-OCI is necessary as part of a solution to address insurers' concerns about accounting mismatches and performance reporting. Therefore, in the absence of a well-defined business model, EFRAG recommends the IASB to introduce FV-OCI measurement as part of its project on insurance contracts.

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