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IFRS 9 : Step by Step Guide

Introduction

IFRS 9 is an International Accounting Standards Board’s (IASB) response to the 2008 global financial crisis. The objective is to improve the accounting and reporting of financial assets and liabilities post financial crisis. In simple words, idea is to predict loss recognition by avoiding finanacial issues faced during global recression.

IFRS stands for International Financial Reports Standards which are a set of accounting standards being implemented by financial organisations across more than 110 countries in the world. It covers major countries from Europe, Middle East, Asia, Africa, Oceana, and the Americas (excluding the US). In US, financial organisations are required to follow CECL (Current Expected Credit Loss) method proposed by the US Financial Accounting Standards Board (FASB). Some US based financial entities with dual filing requirements may need to provision based on both IFRS 9 and CECL.

When was IFRS 9 effective?

In July 2014, IASB published IFRS 9 which replaced old International Accounting Standards IAS 39 with a unified standard. Financial entities had timelines to implement in the period beginning on or after January 1, 2018.

Basic Question – Are you wondering what is ‘9’ in IFRS-9? It is ninth edition of the International Financial Reporting and Assurance Standards.
What changes did IFRS 9 introduce to improve the accounting standards?

IFRS 9 brought in changes in the three main sections. They are as follows : Classification and measurement: Under old accounting standard IAS 39, financial asset classification and measurement was based on the financial asset’s characteristics and management’s intention in relation to the asset. However as per IFRS-9 accounting standards, financial asset classification and measurement is based on the cash flow characteristics and entity’s business model in relation to the financial assets. Impairment: If you are novice in finance and wondering what impairment means, this is the simple definition for you “A loan is called impaired when it is highly likely that bank will be unable to collect the full amount that borrower need to pay in terms of principal and interest.” During the financial crisis, IASB realised that the incurred loss model in IAS 39 contributed to the delayed recognition of credit losses. To fix this issue, they introduced a forward-looking expected credit loss model. Under IFRS 9, the expected credit loss (ECL) model will require more timely recognition of credit losses. Hedge accounting : The objective of the new hedge accounting model is to provide useful information about risk management activities that an entity undertakes using financial instruments. READ MORE »Read MoreListenData

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