IASB proposes limited classification, measurement changes to financial instruments standard

Limited changes to IFRS standards for classification and measurement of financial instruments were proposed Wednesday in an International Accounting Standards Board (IASB) exposure draft.

The proposal would change IFRS 9, Financial Instruments, as part of a larger convergence project with FASB as the boards reform accounting for financial instruments, which has seen considerable changes in recent years.

The IASB published new classification and measurement requirements for financial assets in 2009 and financial liabilities in 2010. But in January, the board decided to consider limited amendments to clarify a narrow range of application questions and reduce differences with FASB’s developing model. The IASB also wanted to take into account the interaction between the classification and measurement of financial assets and accounting for insurance contract liabilities.

Changes were kept to a minimum because the IASB considers IFRS 9 to be fundamentally sound, and because some entities have already adopted or prepared to adopt the standard as previously published.

“We were clear when IFRS 9 was introduced in 2009 that it would be necessary to consider revisiting the interaction between IFRS 9 and the Insurance Contracts project once the insurance contract model was developed sufficiently,” IASB Chairman Hans Hoogervorst said in a statement. “In addition, this limited-scope review has given us an opportunity to propose aligning IFRS and U.S. GAAP more closely in this important area of financial reporting.”

The amendments are consistent with the business model-driven classification structure in IFRS 9. The ED proposes introducing a fair value through other comprehensive income measurement category for debt instruments that would be based on an entity’s business model.

FASB is scheduled to release an ED on classification and measurement of financial instruments in the first half of 2013. In addition, the boards are scheduled to release separate EDs on impairment of financial instruments before the end of the first quarter of next year.

Convergence is expected to be limited in the impairment EDs because FASB decided to develop a “Current Expected Credit Loss” model that is different from the IASB’s “three-bucket” model for credit risk impairment.

A high-level summary of the proposed amendments is available on the IFRS website. Comments are due March 28 and can be submitted on the IFRS site.

—Ken Tysiac (ktysiac@aicpa.org) is a JofA senior editor.