2017 KPMG Lower Gulf Limited and KPMG LLP, operating in the UAE, member firms of the KPMG network of independent member firms affiliated with KPMG

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2 Contents Company name: ABC IFRS report: IFRS 9 diagnostic report Month: December 2017 Glossary of abbreviations 3 Background about the entire exercise and how to read the report 4 Disclaimers 5 IFRS 9 potential impact areas - Summary 6 IFRS 9 potential impact areas - Detail 7 2

Background about the exercise and how to read the report Background about the exercise The International Accounting Standards Board has issued a new accounting standard on financial instruments (

3 Background about the exercise and how to read the report Background about the exercise The International Accounting Standards Board has issued a new accounting standard on financial instruments ( IFRS 9 Financial Instruments ) which is mandatory for the companies to comply when they prepare financial statements for annual periods beginning on or after 01 January 2018 (early application permitted). The new financial instruments standard: Replaces IAS 39 Financial Instruments: Recognition and Measurement Introduces a generational change in the way in which companies account for all financial instruments Includes new guidance on the classification and measurement of financial instruments, impairment and hedge accounting In order to assess the potential impact areas under IFRS 9, the company has used the KPMG IFRS Health Check, a simple online self-diagnostic tool and received this diagnostic report based on the responses provided to the online assessment. How to read the report a) IFRS 9 potential impact areas Summary b) IFRS 9 potential impact areas Detail 4

4 IFRS 9 potential impact areas Summary S.No Topic Sub-topic Applicable for you Potential impact 1 Recognition and derecognition 2 Classification Financial assets - Debt investment Financial assets - Equity investment 3 Reclassification Financial assets 4 Measurement Initial recognition Subsequent measurement: Financial assets - Debt investment Subsequent measurement: Financial assets - Equity investment Subsequent measurement: 5 Impairment Scope ECL model Implementation of ECL model Presentation 6 Hedge accounting Adoption Hedging instruments Hedged items Hedge effectiveness Discontinuation 7 Disclosures 6

5 IFRS 9 potential impact areas Detail Type of financial instruments in the financial statements: a) Financial assets: - Bonds, debentures, sukuks or any other similar debt investments - Equity investments b) : - Loans and borrowings S.No Topic Sub-topic Key changes under IFRS 9 Applicable for you Potential impact Key reasons 1 Recognition and derecognition 2 Classification Financial assets - Debt investment Financial assets - Equity investment IFRS 9 carries forward from IAS 39 the requirements for recognition and derecognition of financial instruments, with only minor amendments. IFRS 9 contains three principal classification categories for debt investments: Amortised cost - A financial asset is classified as being subsequently measured at amortised cost if the asset is held within a business model whose objective is to collect contractual cash flows, and the contractual terms of the financial asset give rise to cash flows that are solely payments of principal and interest (the SPPI criterion ). FVOCI - A financial asset is classified as being subsequently measured at FVOCI if it meets the SPPI criterion and is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. FVTPL - All other financial assets are classified as being subsequently measured at FVTPL. In addition, an entity may, at initial recognition, irrevocably designate a financial asset as at FVTPL, if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. The existing IAS 39 categories of held-tomaturity, loans and receivables, and available-for-sale are removed. IFRS 9 contains two principal classification categories for equity investments: FVOCI - At initial recognition of an equity investment that is not held for trading, an entity may irrevocably elect to present in other comprehensive income (OCI) subsequent changes in its fair value. FVTPL - All equity investments that are held for trading and equity investments that are not held for trading and not designated as FVOCI. The existing IAS 39 category of availablefor-sale is removed. IFRS 9 retains the existing requirements in IAS 39 for the classification of financial liabilities. Possible failure of 'SPPI criterion' due to the existence of the below features in debt investments: - Some feature introduces exposure to risk or volatility to the contractual cash flows unrelated to a basic lending arrangement - Prepayment option - Extension option - Embedded derivatives Existence of some equity investments in the nature of debt (or vice-versa) may pose a challenge in their classification in the financial statements as the classification categories are different for equity investments (FVOCI and FVTPL) and debt investments (amortised cost, FVOCI and FVTPL). 3 Reclassification Financial assets Reclassification of financial assets is required if the objective of the business model in which they are held changes after initial recognition of the assets, and if the change is significant to the entity s operations. Such changes are expected to be very infrequent. No other reclassifications are permitted. No reclassification of financial liabilities is permitted. 4 Measurement Initial recognition IFRS 9 generally retains IAS 39's requirements on measurement at initial recognition. 7

6 Thank you Follow us on: The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG Lower Gulf Limited, operating in the UAE and Oman, member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. The KPMG name and logo are registered trademarks or trademarks of KPMG International. Designed by Creative UAE 10

IFRS 9. Financial instruments for corporates Are you good to go? September kpmg.com/ifrs

IFRS 9. Financial instruments for corporates Are you good to go? September kpmg.com/ifrs IFRS 9 Financial instruments for corporates Are you good to go? September 2017 kpmg.com/ifrs Are you good to go? IFRS 9 will change the way many corporates account for their financial instruments. You