REPARIS. IFRS 9 Classification and Measurement. Shamim Diouman

Transcription

1 REPARIS THE ROAD TO EUROPE: PROGRAM OF ACCOUNTING REFORM AND INSTITUTIONAL STRENGTHENING IFRS 9 Classification and Measurement Shamim Diouman REPARIS IFRS Seminar for banking supervisors Croatia National Bank, Zagreb April 18-19, 2012 with generous support of

2 The IAS 39 replacement project (IFRS 9) IAS 39 always seen as too complex, rules-based, and difficult to understand Implementation Guidance and Basis for Conclusion are key to understand IAS 39 For some stakeholders IAS 39 is seen as too fair-value oriented and not flexible enough, hence the amendment to allow re-classification at the beginning of the crisis Replacement of IAS39 initiated in 2009 as a response to requests from G20 and Basel Committee (guiding principles for the revision of IAS39) 2

3 The IAS 39 replacement project with IFRS 9 The project started in 2009 during the crisis and was delayed several times Three phases: Phase 1: Classification and measurement Finalised but maybe reopened for limited changes Phase 2: Amortised Cost and Impairment of financial assets Ongoing discussions Phase 3: Hedge accounting Ongoing discussions 3

4 The IAS 39 replacement project with IFRS 9 The replacement project has 3 phases Only one phase has been completed: Classification and Measurement Endorsement will have to wait for the other 2 phases Proposed effective date is now 2015 New concerns were raised recently about default category being fair value through P&L Use of Other Comprehensive Income back on the discussion table 4

5 Outline Objectives of the session IFRS 9 Classification and Measurement Classification and Measurement Classification: two categories Amortised cost v/s fair value Fair Value Option Measurement Hierarchy Reclassification 5

6 Phase 1 Classification and Measurement IFRS 9 phase 1: Classification and Measurement published in November 2009 Requirements for financial liabilities were added to IFRS 9 in October 2010 Most of the requirements for financial liabilities were carried forward unchanged from IAS 39 Some changes were made to the fair value option for financial liabilities to address the issue of own credit risk Exposure draft to change the mandatory effective date of IFRS 9 to annual periods beginning on or after 1 January 2015 from January

7 IFRS 9 Classification From 4 categories to 2 categories IAS 39 Fair value through P&L IFRS 9 Fair value through P&L Available for sale Loans and receivables Amortised cost Held to Maturity + Tainting rules Tainting rules 7

8 IFRS 9 Classification: amortised cost v/s fair value Classification on the basis of both: Business model and Contractual cash flows characteristics Amortised cost - must be used where asset held to collect contractual cash flows and on specified dates interest. Interest is consideration for the time value of money and credit risk for the period Fair Value all assets that are not measured at amortised cost 8

9 IFRS 9 Classification: Fair Value Option Allowed to designate a financial asset at fair value if this eliminates or reduces an accounting mismatch to produce more relevant information Example: Assets and liabilities for insurance IFRS 9 B (a) The following example show when this condition could be met. In all cases, an entity may use this condition to designate financial assets or liabilities at fair value through P&L only if it meets the principle of in paragraph or 4.2.2(a) (a) An entity has liabilities under insurance contracts whose measurement incorporates current information( as permitted by IFRS 4 Para 24)and financial assets it considers related that would otherwise be measured at amortised cost 9

10 IFRS 9 Measurement Hierarchy Level 1 - Quoted prices The best evidence of fair value is quoted prices in an active market Level 2 Valuation technique making maximum use of maximum of market inputs observable inputs Reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option pricing models Valuation technique commonly used by market particpants and demonstrated to provide reliable estimates of prices obtained in actual market transactions Level 3 Valuation technique with no market observable input 10

11 IFRS 9 Reclassification Is allowed when business model changed Not allowed for any financial liability Are not considered as reclassification: a cash flow hedge derivative that was previously or becomes a designated and effective hedging instrument in a cash flow hedge or net investment hedge no longer qualifies as such 11

12 IFRS 9 Recent discussions IFRS 9 reopen for discussions in 2012 to: Align US GAAP and IFRS on Financial Instruments List instruments eligible to amortized cost measurement To having instrument measured at FVTOCI 12

13 Thank you The views expressed in this presentation do not necessarily reflect those of the Executive Directors of The World Bank or the governments they represent.