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A BRIEF SUMMARY
IFRS 9 applies to ALL financial instruments, with the exception of financial instruments which are
dealt with in their own standards.
Popular opinion has held that the current IAS 39 dealing with financial instruments is too complex
for most companies to apply. A refreshed standard was required that would align more closely with
the models adopted by businesses in their day-to-day operations.
IFRS 9 has been developed with a view to:
1. Simplifying the classification and measurement of financial instruments;
2. Updating the treatment of impairment of financial instruments, by adopting a forwardlooking approach;
3. Substantially overhauling hedge accounting (this is viewed as a specialist area, and as such
will not be dealt with as part of this brief summary)
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Address:
Contact No.
4 Edmund Road
Constantia Kloof
Florida
1709
079 878 5903
072 477 2945
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Default classification
FAIR VALUE
THROUGH PROFIT
AND LOSS
FAIR VALUE
THROUGH OTHER
COMPREHENSIVE
INCOME
AMORTISED COST
Page 2
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When considering the classification of financial assets into either the Fair Value Through Other
Comprehensive Income or Amortised Cost categories, one needs to take into cognisance the
business model of the company.
BUSINESS MODEL
Page 3
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Default classification
Exceptions:
AMORTISED COST
FAIR VALUE
THROUGH PROFIT
AND LOSS
Page 4
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072 477 2945
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INITIAL MEASUREMENT
(ALL FINANCIAL
INSTRUMENTS)
At fair value
SUBSEQUENT
MEASUREMENT
(IF CARRIED AT
AMORTISED COST)
SUBSEQUENT
MEASUREMENT
(IF CARRIED AT FAIR
VALUE)
Page 5
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072 477 2945
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Reclassification
An entity may only reclassify financial assets when its business model has changed. This would
indicate a fundamental change in the management and direction of the business, which would
trigger the potential need to reclassify instruments under its control.
All reclassifications are done prospectively from the beginning of the following accounting period
after the change in business model. No reclassifications can be effected during the period.
Impairment
In impairment is, at its core, the derecognition of that portion of an asset that no longer meets
the asset definition, due to the fact that the expectation of future economic benefits has
changed.
A more conservative approach has been adopted in IFRS 9 in the assessment of impairment of
financial instruments.
The implementation of a new Expected Loss Model results in the use of historic, current and
forecast information to determine loss allowances.
Impairments are to be recognised on Day 1, taking into account the expectation of future economic
losses.
Page 6
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Determine an
expected loss
over the next 12
months and
raise a provision
for impairment
Interest revenue
is recognised on
the gross
carrying amount
Stage 2:
Financial Asset
is underperforming
Credit quality
has significantly
deteriorated,
but instrument
is not impaired
Determine an
expected loss
over the lifetime
of the
instrument and
raise a provision
for impairment
Interest revenue
is recognised on
the gross
carrying amount
Stage 3:
Financial Asset
is nonperforming
The instrument
has been
specifically
identified as
being impaired
Determine an
expected loss
over the lifetime
of the
instrument and
impair the asset
directly
Interest revenue
is recognised on
the net
(amortised)
carrying amount
Stage 1:
Financial Asset
is performing
(return is in line
with risk)
It is anticipated that the implementation of the above model will be onerous for entities operating in
the financial services sector, where numerous financial assets which are exposed to fluctuations are
under administration.
The majority of entities within other sectors will primarily be concerned with the determination of
expected loss allowances on trade receivables. To facilitate this, a simplified model is applicable to
the determination of credit allowances on trade receivables.
Page 7
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Expected loss
rate
Current
1 30 days
past due
31 60 days
past due
61 90 days
past due
0.2%
2.5%
7.5%
9.5%
12%
Page 8
Address:
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072 477 2945
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Disclosures
Quantitative disclosures:
Reconciliation of opening loss allowance to closing loss allowance, showing key drivers of
change
Reconciliation of opening gross carrying amounts to closing gross carrying amounts, showing
key drivers of changes
Gross carrying amounts by credit risk grade
Write offs, recoveries and modifications
Qualitative disclosures:
Inputs, assumptions and estimation techniques for estimating expected credit losses
Inputs, assumptions and estimation techniques to determine significant increases in credit
risk and default
Inputs, assumptions and techniques to determine credit-impaired assets
Write-off policies, modification policies and collateral
Transition
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