IFRS 9 "Financial Instruments"

IFRS 9 "Financial Instruments" is an international financial reporting standard issued by the International Accounting Standards Board (IASB). It replaced IAS 39 "Financial Instruments: Recognition and Measurement" and is aimed at making financial reporting for financial instruments more intuitive and straightforward. IFRS 9 has significantly changed the accounting for financial instruments, particularly in the areas of classification and measurement, impairment, and hedge accounting. Here are some key aspects of IFRS 9:

1. Classification and Measurement: IFRS 9 introduces a new classification and measurement model for financial assets based on the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. The three main classification categories for financial assets under IFRS 9 are amortized cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVPL).

2. Impairment: IFRS 9 uses an 'expected credit loss' (ECL) model as opposed to the 'incurred loss' model under IAS 39. This means that entities need to make an allowance for expected credit losses even if a credit event (like a default) has not yet occurred. This forward-looking approach aims to address criticisms that the IAS 39 model did not recognize credit losses early enough.

3. Hedge Accounting: The rules for hedge accounting have been reformed under IFRS 9 to better align them with risk management activities undertaken by entities when hedging financial and non-financial risk exposures. This change offers more flexibility in the types of hedging strategies that qualify for hedge accounting and simplifies the effectiveness testing requirements.

4. Derecognition of Financial Assets and Liabilities: While IFRS 9 maintains the basic principles of IAS 39 for the derecognition of financial assets and liabilities, it includes clarifications and enhancements in this area.

5. Disclosures: IFRS 9 requires extensive disclosures to enable users of financial statements to understand the significance of financial instruments to an entity’s financial position and performance, as well as the nature and extent of risks arising from those instruments.

6. Transition: The standard includes specific transition requirements and allows some exemptions.

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