IASB Releases New Standard for Financial Instruments

The International Accounting Standards Board (IASB) on Thursday issued a new standard on the classification and measurement of financial assets. Publication of the standard represents completion of the first part of a three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement, with a new standard, IFRS 9, Financial Instruments.

IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on the reporting entity’s business model and the contractual cash flow characteristics of the financial assets. The new standard also requires companies to use a single impairment method rather than allowing the many methods in IAS 39. As a result, the IASB says IFRS 9 will improve comparability and make financial statements easier to understand for investors and other users.

Citing numerous outreach activities to stakeholders, the IASB says it has received broad support for its approach. At the same time, the standard-setter points out that a number of changes were made to the exposure draft issued in July to accommodate stakeholder concerns. For example, the IASB changed the accounting that was proposed for structured credit-linked investments and for purchases of distressed debt. The IASB also addressed concerns expressed about the problems created by the mismatch in timings between the mandatory effective date of IFRS 9 and the likely effective date of a new standard on insurance contracts.

Furthermore, in response to suggestions made by some respondents, the IASB decided not to finalize requirements for financial liabilities in IFRS 9. The IASB has begun the process of giving further consideration to the classification and measurement of financial liabilities. It expects to issue final requirements during 2010.

Details on how the IASB responded to comments received through the consultation process are available here.

The effective date for mandatory adoption of IFRS 9 is Jan. 1, 2013. Consistent with requests by the G-20 leaders and others, early adoption is permitted for 2009 year-end financial statements.

IFRS 9 is available (subscription required) at iasb.org.

The remaining parts of the project deal, respectively, with the impairment methodology for financial assets and hedge accounting. The IASB published an exposure draft on the impairment methodology for financial assets on Nov. 5 (see “IASB Proposes New Accounting Model for Financial Instruments”). The IASB says proposals on hedge accounting are being developed.