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History of the origins of IFRS 9
|July 14, 2009||IASB publishes draft ED / 2009/7Financial instruments: classification and valuation||Comment deadline: September 14, 2009|
|November 5, 2009||Draft standard ED / 2009/12Financial instruments: amortized cost and impairment released||The comment period ends on June 30, 2010|
|November 12, 2009||IASB publishes IFRS 9 Financial instrumentswhich covers the classification and valuation of financial assets; this is the first phase of the project to replace IAS 39 |
IASB press release (101 KB)
|original date of entry into force: January 1, 2013; later deleted|
|May 11, 2010||IASB publishes draft ED / 2010/4Fair value option for financial liabilities||Comment deadline: July 16, 2010|
|October 28, 2010||IASB issues IFRS 9 Financial instruments again, in which new regulations for the accounting of financial liabilities have been included and the regulations for the derecognition of financial assets and liabilities from IAS 39 have been adopted. |
Press release by the IASB (33 KB)
|original date of entry into force: January 1, 2013; later deleted|
|December 9, 2010||Draft standard ED / 2010/13Accounting for hedging relationships released||The comment period ends on March 9, 2011|
|January 31, 2011||Supplement to ED / 2009/12Financial instruments: amortized cost and impairment released||The comment period ends on April 1, 2011|
|4th August 2011||IASB publishes draft ED / 2011/3, which proposes the date of entry into force of IFRS 9 Financial instruments to postpone from 2013 to 2015||Comment deadline: October 21, 2011|
|December 16, 2011||IASB published Mandatory date of entry into force and information on the transition (amendments to IFRS 9 and IFRS 7)||postpones the mandatory date of entry into force of IFRS 9 to January 1, 2015 (later deleted) and grants relief with regard to the adjustment of earlier periods and the corresponding disclosures in accordance with IFRS 7|
|September 7, 2012||'Draft for Review' of the Hedge Accounting section in IFRS 9 Financial instruments published|
|November 28, 2012||IASB publishes draft ED / 2012/4Classification and Measurement: Limited Changes to IFRS 9 (Proposed Changes to IFRS 9 (2010))||Comment deadline: March 28, 2013|
|March 7, 2013||Draft ED / 2013/3Financial Instruments: Expected Credit Defaults published||Comment deadline on July 5, 2013|
|19th November 2013||IASB publishes IFRS 9Financial instruments (hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39)and amends IFRS 9 with regard to the following points: ||also deletes the mandatory date of first-time application of IFRS 9 (2009) and IFRS 9 (2010)|
|July 24, 2014||IASB publishes IFRS 9 Financial instruments|
IFRS 9 (2014) was issued as a complete standard that brings together all previously published regulations with the new regulations for the recognition of impairment as well as limited changes to the classification and measurement of financial assets.With the publication, the IASB ends the project on accounting for financial instruments. The first mandatory application of IFRS 9 is planned for fiscal years beginning on or after January 1, 2018. Subject to local regulations (such as the European endorsement procedure), earlier application is permitted.
|September 12, 2016||IASB published Application of IFRS 9 'Financial Instruments' together with IFRS 4 'Insurance Contracts' (amendments to IFRS 4)to address concerns about the different effective dates of IFRS 9 and the new insurance standard|
An entity applies the overlay approach retrospectively to qualifying assets as soon as it first applies IFRS 9.
A company applies the deferral approach from reporting periods beginning on or after January 1, 2018.
|October 12, 2017||IASB published Prepayment rules with negative compensation payments (amendments to IFRS 9)to address concerns about how certain financial financial instruments with prepayment features are classified under IFRS 9|
The changes to IFRS 9 are to be applied retrospectively to fiscal years beginning on or after January 1, 2019. Early application is permitted.
|May 14, 2020||Changes issued as part of the annual improvements 2018-2020 (fees in the ‘10% test ’with regard to the write-off of financial liabilities) - further information|
First-time application for fiscal years beginning on or after January 1, 2022.
Summary of IFRS 9
The phased completion of IFRS 9
On November 12, 2009, the International Accounting Standards Board (IASB) issued a new International Financial Reporting Standard (IFRS) for the classification and measurement of financial instruments. The publication marked the preliminary completion of the first part of a three-phase project to replace IAS 39 Financial instruments: approach and valuation by a new standard. With IFRS 9 new regulations for the classification and measurement of financial assets were introduced. The rules were originally intended to apply from 1 January 2013; early application was permitted. The English language press release of the IASB can be found here (101 KB).
On October 28, 2010, the IASB adopted IFRS 9 Financial instruments reissued, in which the amended regulations for the accounting of financial liabilities have been incorporated and the regulations for the derecognition of financial assets and liabilities from IAS 39 have been adopted. The English language press release of the IASB can be found here (33 KB).
On December 16, 2011, the IASB Mandatory date of entry into force and information on the transition (amendments to IFRS 9 and IFRS 7) published. This means that the mandatory date of entry into force of IFRS 9 has been postponed to reporting periods beginning on or after January 1, 2015. In addition, relief was granted with regard to the adjustment of earlier periods and the corresponding disclosures in accordance with IFRS 7.
On November 19, 2013, the IASB adopted IFRS 9Financial instruments (hedge accounting and amendments to IFRS 9, IFRS 7 and IAS 39) and thus IFRS 9 with regard to the inclusion of the new model for general hedge accounting, the approval of the early adoption of the regulation, changes in the fair value from own credit risk for liabilities that are at fair value with the recognition of the changes in the income statement must be reported in other comprehensive income, and the deletion of the mandatory first-time application of January 1, 2015 has been changed.
On July 24, 2014, the IASB published the final version of IFRS 9, which now contains the new regulations on the recognition of impairment losses and the limited changes to the classification and measurement of financial assets. This version replaces all previous versions of IFRS 9. The first mandatory application of IFRS 9 is planned for fiscal years beginning on or after January 1, 2018. Subject to local regulations (such as the European endorsement procedure), earlier application is permitted. Previous versions of IFRS 9 can be applied early within a limited period of time (if not already done), provided that the relevant date of first application is before February 1, 2015.
Overview of IFRS 9
scope of application
IFRS 9 is to be applied to all types of financial instruments. The scope of the scope is determined in accordance with IAS 39, so that the scope of IFRS 9 corresponds to that of IAS 39.
Exceptions to the scope
The following financial instruments are excluded from the scope of IAS 39 and thus also from the scope of IFRS 9 (IFRS 9: 2.1 in conjunction with IAS 39.2):
- Shares in subsidiaries, associated companies and joint ventures that are accounted for in accordance with IAS 27, 28 or 31; IAS 32 and IFRS 9 are nevertheless relevant in cases in which IAS 27, 28 or 31 or IFRS 10, IAS 27 (2011) or IAS 28 (2011) require that such shares are to be accounted for in accordance with IFRS 9 - for example Derivatives on investments in an affiliated, associated or joint venture;
- Rights and obligations of an employer under retirement benefit plans to which IAS 19 applies;
- Rights and obligations from insurance contracts; Nevertheless, IFRS 9 is to be applied to financial instruments that take the form of an insurance or reinsurance contract, but actually involve the transfer of financial risks; In addition, derivatives embedded in insurance contracts are accounted for in accordance with IAS 39;
- Financial instruments that meet the definition of a separate equity instrument in accordance with IAS 32 or are treated as equity instruments in accordance with IAS 32.16A and 16B or IAS 32.16C and 16D. However, the exclusion from the scope only applies to the issuer of such instruments.
- Certain futures contracts entered into between an acquirer and a selling shareholder with a view to buying or selling a company that will result in a business combination at a future acquisition date.
- Financial instruments, contracts and obligations in the context of share-based payment transactions to which IFRS 2 applies
- Rights to reimbursement payments to which IAS 37 applies
IFRS 9 is only applicable to lease receivables and liabilities to a limited extent (IFRS 9: 2.1 in conjunction with IAS 39.2 (b)). The standard is relevant for:
- Lease receivables with regard to derecognition and impairment regulations;
- Lease liabilities with regard to the derecognition requirements; as
- embedded derivatives in leases.
IFRS 9 is to be applied to written financial guarantee agreements. If the writer of a financial guarantee has previously expressly stated that he will treat these contracts like insurance contracts and have accounted for them in accordance with the rules applicable to insurance contracts, he has the option to use these contracts either in accordance with IFRS 9 or in accordance with IFRS 4 Insurance contracts to be accounted for. The guarantor can determine this for each contract individually, but the determination is irrevocable.
Accounting by the holder is excluded from the scope of IFRS 9 and IFRS 4 (unless it is a reinsurance contract). As a result, paragraphs 10-12 of IAS 8 Accounting policies, changes in estimates and errors apply. These paragraphs set out the criteria for developing an accounting treatment when no other IFRS is relevant.
Loan commitments do not fall within the scope of IFRS 9 if they cannot be settled in cash or other financial instruments, have not been classified as financial liabilities at fair value through profit or loss, and the company does not normally use the loans from its commitments in the past sold shortly after the submission. If a company undertakes to provide a loan at a lower rate than the market interest rate, this commitment is initially to be recognized at fair value and subsequently at the higher amount resulting from the (a) application of the impairment model in accordance with IFRS 9 (see below) and ( b) to measure the amount originally recognized minus, if applicable, the cumulative reversals recognized in accordance with IFRS 15. The issuer of a loan commitment must apply IAS 37 to other loan commitments that are not within the scope of IFRS 9 (that is, those made at or above market rates). However, all loan commitments are subject to the rules on derecognition and impairment of IFRS 9.
Contracts for the purchase or sale of financial items
Contracts to buy or sell financial items are always within the scope of IFRS 9.
Contracts for the purchase or sale of non-financial items
Contracts to buy or sell non-financial items are within the scope of IFRS 9 if they can be settled in cash or other financial instruments and not for the purpose of receiving or delivering non-financial items in accordance with the expected purchase, sale or usage needs of the company have been completed and will continue to be maintained in this sense. Contracts to buy or sell non-financial items fall within the scope when settlement is on a net basis. The following issues represent fulfillment on a net basis (IFRS 9: 2.1 in conjunction with IAS 39.5-6):
- the terms of the contract allow each counterparty to settle the contract on a net settlement basis;
- Similar contracts in the past have usually been performed on a net basis;
- In the case of similar contracts, the company usually accepts the subject matter of the contract and sells it again shortly after delivery in order to generate profits from short-term price fluctuations or dealer margins;
- the non-financial item can be converted into cash at any time.
Although contracts that provide for payments based on climatic, geological or other physical variables were generally excluded from the original version of IAS 39, they were included in the scope of IAS 39, which was revised in December 2003, and are therefore also subject to the scope of IFRS 9, provided they do not fall within the scope of IFRS 4 (IAS 39.AG1).
- Cash and cash equivalents;
- Sight deposits and time deposits;
- Money market papers;
- Trade accounts receivable and payable as well as bonds and loans;
- Debt and Equity. These represent financial instruments from the perspective of the issuer as well as the owner and are subject, at least for the owner, to the scope of IFRS 9. This category includes investments in affiliated, associated and joint ventures;
- Asset-backed securities such as secured mortgage obligations, repurchase agreements, and secured pools of receivables;
- Derivatives such as options, warrants, futures, forwards and swaps.
Financial instrument: A contract that simultaneously results in a financial asset in one company and a financial liability or equity instrument in another.
Financial asset: Financial assets include:
- liquid funds;
- another entity's equity instruments held as assets;
- a contractual right,
- receive cash or other financial assets from another company; or
- to exchange financial assets or financial liabilities with another company on terms that are potentially advantageous; or
- a contract that will or can be performed in the entity's own equity instruments that is:
- a non-derivative financial instrument that includes or may include a contractual obligation by the company to receive a variable number of equity instruments from the company;
- a derivative financial instrument that is not or cannot be fulfilled by exchanging a fixed amount of cash or other financial assets for a fixed number of the company's own equity instruments (restrictions apply as to which instruments are to be regarded as a company's own equity instruments in this context are).
Financial liabilities: Financial liabilities include:
- contractual obligations,
- transfer liquid funds or any other financial asset to another company; or
- to exchange financial assets or financial liabilities with another company on potentially disadvantageous terms; or
- a contract that will or can be performed in the company's own equity instruments.
These definitions result from IAS 32.11, to which reference is made in IFRS 9: Appendix A.
A derivative is a financial instrument (IFRS 9: Appendix A in conjunction with IAS 39.9):
- the value of which changes as a result of a change in a reference variable such as an interest rate, security price, commodity price, exchange rate, price or interest index, credit rating or credit index or a similar variable;
- that no or one that requires a lower purchase price payment compared to other types of contract that are expected to react in a similar way to changes in market conditions;
- and that will be settled at a later date.
Examples of derivatives
Forwards: Contracts for the purchase or sale of a specified amount of a financial instrument, a commodity or a foreign currency at a price specified in advance, with delivery or performance taking place at a specified time in the future. Fulfillment on the due date can either be through actual delivery of the items specified in the contract or through net cash settlement.
Interest rate swaps and forward rate agreements: Contracts for the exchange of cash flows at a specified time or a series of specified times based on a nominal amount and fixed and variable interest.
Futures: Contracts that are comparable to forwards, but with the following differences: Futures are standardized and traded on the stock exchange, while forwards are customized. Futures are generally settled through a closing (opposing) transaction, while forwards are usually settled through delivery of the base or through payment.
Options: Contracts that give the buyer the right, but not the obligation, to buy (purchase option) or sell (put option) a specified amount of a specific financial instrument, commodity or foreign currency at a specified strike price during a specified period or at a given time. These can be written individually or traded on the stock exchange. The buyer of the option pays the seller of the option (the writer) a premium (option premium) to compensate him for his risk from the option.
Caps and Floors: These are contracts that are sometimes also called interest rate options. In the case of an interest rate cap, the buyer of the cap receives compensation if the interest rate rises above a fixed rate (strike rate), while in the case of an interest rate floor the buyer receives compensation if the interest rate falls below a fixed rate.
Classification as equity or debt
Since IFRS 9 excludes accounting for equity instruments issued by the reporting entity, but regulates accounting for financial liabilities, the classification of an instrument as a liability or equity is very important. IAS 32 Financial instruments: identification deals with the question of classification.
Initial valuation of financial instruments
All financial instruments are measured at fair value upon receipt. Transaction costs increase or decrease the initial book value if the financial asset or financial liability is not measured at fair value with the changes in value being recognized in profit or loss for the period.
Subsequent valuation of financial assets
According to IFRS 9, all financial assets are divided into two classification categories - those that are measured at amortized cost and those that are measured at fair value. If financial assets are measured at fair value, expenses and income can either be recorded in full in profit or loss for the period (at fair value through profit or loss, FVTPL) or in other comprehensive income (at fair value through other comprehensive income, FVTOCI).
For some debt instruments, classification as FVTOCI may be mandatory unless the fair value option is exercised. In contrast, equity instruments are allocated to FVTOCI on a voluntary basis. In addition, the rules for reclassifying the amounts recognized in other comprehensive income for debt instruments and equity instruments also differ.
The classification is determined when the financial asset is recognized for the first time, i.e. when the company becomes a counterparty to the contractual agreements of the instrument. In certain cases, however, a later reclassification of financial assets may be necessary.
A debt instrument that meets the following two conditions must be valued at amortized cost (taking into account any impairment), unless the fair value option (see below) is exercised upon receipt:
- Business model condition: The objective of the company's business model is to hold the financial assets in order to collect the contractual cash flows.
- Cash flow condition: The contractual conditions of the financial asset lead to cash flows at specified times that are only repayments of parts of the nominal value and the interest on the not yet repaid parts of the nominal value.
If financial assets are sold before their maturity, this does not trigger a consequence comparable to the “tainting” under IAS 39. However, disposals are to be questioned in connection with the business model condition.
When assessing the payment flow condition, a change in the timing or amount of payments must also be analyzed. It is necessary to assess whether the cash flows before and after the change only represent repayments of the nominal amount and an interest based thereon.
For example, a right of termination can be consistent with the cash flow condition if, in the event of termination, only the outstanding payments in terms of interest and amortization are essentially due and an appropriate compensation payment is made, if necessary. The IASB made it clear in October 2017 that this can also include negative compensation payments. *
*Prepayment rules with negative compensation payments (amendments to IFRS 9); to be applied retrospectively for fiscal years beginning on or after January 1, 2019; early application is permitted
A debt instrument that meets the following two conditions must be measured at fair value with the changes in value recorded in other comprehensive income (FVTOCI) (taking into account any impairment), unless the fair value option (see below) is exercised upon addition:
- Business model condition: The objective of the company's business model is achieved in that both the contractual cash flows of financial assets are received and financial assets are sold.
- The contractual conditions of the financial asset lead to cash flows at specified times that are only repayments of parts of the nominal value and the interest on the not yet repaid parts of the nominal value.
Fair value option
Even if an instrument fulfills the two conditions for allocation to the category “measured at amortized cost” or “at fair value with the recognition of changes in value in other comprehensive income”, IFRS 9 contains an option to be exercised upon addition, according to which such instruments are to be attributed Fair value can be valued with the recording of changes in value in the period result if this prevents or significantly reduces a valuation or accounting inconsistency (also known as "accounting anomaly") that would otherwise arise from valuing assets or liabilities or the valuation results arising from them on different valuation bases.
All equity instruments that fall within the scope of IFRS 9 are to be recognized in the balance sheet at fair value; Changes in value are recorded in the profit or loss for the period. There is no longer an 'acquisition cost exemption' for shares in unlisted companies.
Option "other overall result" (FVTOCI option)
If an equity instrument is not held for trading purposes, a company can make the irrevocable decision upon initial recognition to measure it at fair value by recognizing the changes in value in other comprehensive income (at fair value through other comprehensive income, FVTOCI), whereby only income from dividends are recognized in profit or loss for the period if they do not represent a capital repayment.
Despite the requirement that all investments in equity instruments be measured at fair value, IFRS 9 contains guidelines on when acquisition costs can be the best estimate of fair value and when they may not be the best approximation of fair value.
In addition to this, the staff of the IFRS Foundation, in cooperation with the group of valuation experts as part of the education and training initiative, has accompanying materials for IFRS 13 entitled 'Measurement of the fair value of unlisted equity instruments that fall within the scope of IFRS 9 Financial Instruments 'published.
Subsequent valuation of financial liabilities
IFRS 9 does not change the basic accounting model for financial liabilities from IAS 39. There are still two valuation categories: valuation at fair value with recording of changes in value in the period result and amortized cost. Financial liabilities held for trading are measured at fair value with changes in value recorded in profit or loss for the period. All other financial liabilities are valued at amortized cost, unless the company voluntarily designates them upon initial recognition as "to be valued at fair value with the recognition of changes in value in the period result" (so-called fair value option).
Voluntary designation as "to be measured at fair value through profit or loss" (fair value option)
IFRS 9 includes the option to voluntarily designate a financial liability as "measured at fair value through profit or loss" if the following applies:
- This designation significantly eliminates or reduces a measurement or approach inconsistency (sometimes called an "accounting anomaly) that would otherwise arise from differently valuing assets and liabilities or recognizing gains and losses from them on different bases. Or:
- The liability is part of a group of financial assets and financial liabilities that are managed on a fair value basis and the performance of which is measured in accordance with the stated management or investment strategy, and information about this group is made available to key management personnel on this basis made available.
A financial liability that does not meet these criteria can still be designated as "to be measured at fair value with the recognition of changes in value in profit or loss" if it contains one or more embedded derivatives that would otherwise have to be separated.
IFRS 9 requires that gains and losses on financial liabilities designated as "measured at fair value with changes in value recognized in profit or loss for the period" are broken down into the amount of changes in fair value that corresponds to changes in the credit risk of the liability and which is to be recognized in other comprehensive income, and the remaining amount of the changes in fair value that is recognized in profit or loss for the period. According to the new guidelines, the recording of the full amount of changes in fair value in profit or loss for the period is only permitted if the recording of changes due to the credit risk of the liability in other comprehensive income would create or increase an accounting anomaly in profit or loss for the period. This assessment is made the first time it is applied and is not reassessed.
Amounts that are recognized in other comprehensive income may not be transferred to profit or loss for the period at a later date. However, the company may reclassify the cumulative valuation results within equity.
All derivatives, including those linked to unlisted equity instruments, are to be measured at fair value. Changes in value are recognized in profit or loss for the period, unless the company has decided and is entitled to account for the derivative as a hedging instrument in accordance with IFRS 9. In this case, the special regulations for hedge accounting apply (see below).
An embedded derivative is a part of a structured product contract that also contains a non-derivative host contract. The cash flows of the embedded derivative behave similarly to those of a free-standing derivative. A derivative that is linked to another financial instrument but can be contractually transferred independently of it or has a different counterparty is not an embedded derivative, but a separate financial instrument.
The concept of embedded derivatives from IAS 39 has only been adopted in IFRS 9 for host contracts that are not financial assets within the meaning of this standard. As a result, embedded derivatives that were accounted for separately at fair value in accordance with IAS 39 with the recognition of changes in value in profit or loss because they are not closely related to the host contract are no longer separated. Instead, the contractual cash flows of the financial asset are assessed in their entirety and the financial asset as a whole is measured at fair value with the changes in value recognized in the result for the period, if even one of its cash flows does not represent a repayment of nominal and interest and thus the cash flow condition is not met can.
However, the concept of embedded derivatives from IAS 39 and under IFRS 9 continues to apply to host contracts in the form of financial liabilities and host contracts that do not fall within the scope of IFRS 9 (e.g. leasing contracts, insurance contracts, contracts for the sale or acquisition of non-financial ones Post).
In the same way as free-standing derivatives, embedded derivatives that are required to be separated must also be recognized at fair value with the changes in value recorded in profit or loss for the period. IFRS 9 stipulates that an embedded derivative must be separated from the host contract (with the exception of a host contract in the form of a financial asset) and accounted for as a derivative if:
- the economic risks and characteristics of the embedded derivative are not closely related to those of the host contract;
- a stand-alone instrument with the same contractual terms would meet the definition of a derivative; and
- the entire financial instrument is not measured at fair value through profit or loss.
If an embedded derivative has to be split off, the host contract is accounted for in accordance with the applicable standard (for example, in accordance with IFRS 9, if the host contract is a financial liability). Appendix B of IFRS 9 contains examples of embedded derivatives that are closely related to host contracts and examples of those that are not.
A reclassification from 'at fair value with recognition of changes in value in the period result' at amortized cost or vice versa is required for debt instruments if the objective of the company's business model has changed with regard to its financial assets.
If a reclassification is required, it must be carried out prospectively from the beginning of the period following the point in time of the change in the business model (the point in time defined in this way). The company does not retrospectively adjust previously recorded valuation results or interest.
This is not a change in the business model in the following cases:
- (a) a change in intent with respect to certain financial assets (including in the event of material changes in market conditions);
- (b) the temporary disappearance of a particular market for financial assets;
- (c) a transfer of financial assets between parts of the company with different business models.
Reclassification is not permitted in the following cases:
- Equity instruments that are FVTOCI valued as well
- All instruments for which the fair value option was exercised, regardless of whether they are financial assets or financial liabilities
Derecognition of a financial asset
The derecognition regulations for financial assets were transferred unchanged from IAS 39 to IFRS 9.
Before checking the derecognition of financial assets, it must first be ensured that all subsidiaries and in particular special-purpose entities have been consolidated in accordance with IAS 27 / SIC 10 or IFRS 10.
Then it must first be determined whether the asset intended for derecognition is
- a whole asset; or
- specially defined cash flows of an asset; or
- an exactly proportional part of the cash flows of an asset; or
- an exactly proportional part of specially defined cash flows of a financial asset
Once the asset to be derecognized has been determined, an assessment is made as to whether the contractual rights to cash flows from the financial asset have expired (which leads to derecognition) or whether the asset has been transferred, and if so, whether the transfer of the asset has been made entitled to write off.
An asset is transferred when the entity either transfers the contractual rights to receive the cash flows or has retained the contractual rights to receive the cash flows from the asset, but has entered into a contractual obligation in an agreement to forward these cash flows, which includes the following meets three conditions:
- the entity is not required to make any payments to any recipients unless it receives equivalent amounts from the original asset;
- the company is prohibited from selling or pledging the original asset (except as security for the eventual recipient); and
- the company has an obligation to pass on these cash flows without significant delay.
Once the business has determined that the asset has been transferred, it must assess whether or not it has substantially transferred all of the risks and rewards of ownership of the asset. When essentially all opportunities and risks have been transferred, the asset is derecognized. If essentially all opportunities and risks have been retained, this rules out the asset being derecognized.
If the company has neither transferred nor retained substantially all of the opportunities and risks in ownership of a transferring asset, it must determine whether or not it has relinquished control of the asset. If the company no longer has the asset, it must be derecognized; however, if the company retained control of the asset, it must continue to recognize the asset to the extent of its continuing involvement in the asset.
The individual steps of derecognition are summarized in a decision tree in IFRS 9: B3-2-1.
Derecognition of a financial liability
The derecognition rules for financial liabilities were also transferred from IAS 39 to IFRS 9 unchanged.
A financial liability may only be removed from the balance sheet if it has been repaid, i.e. if the obligation specified in the contract has either been settled, canceled or has expired. In the event of an exchange of debt instruments with substantially different contractual terms between an existing borrower and a lender or in the event of substantial changes in the contractual terms of an existing liability, the transaction is to be treated as a redemption of the original financial liability and the recognition of a new financial liability. A gain or loss from the repayment of the original financial liability is to be recognized in profit or loss.
Accounting for hedging relationships
The rules for accounting for hedging relationships (hedge accounting) can be applied voluntarily. Under certain conditions, the use of hedge accounting enables the risk management activities of a company to be mapped in the annual financial statements. This is done by comparing the expenses and income of the hedging instruments with those from the underlying transactions designated with regard to certain risks.
The regulations on hedge accounting under IFRS 9 are not intended to represent the hedging of open, dynamic portfolios. For this reason, the possibility was created to apply the relevant regulations of IAS 39 to portfolio fair value hedges against interest rate risks instead of applying the general regulations of IFRS 9. [IFRS 9: 6.1.3]
In addition, when IFRS 9 is applied for the first time, an accounting option can be exercised to continue to account for hedging relationships in accordance with IAS 39 instead of the rules on hedge accounting set out in Chapter 6 of IFRS 9. [IFRS 9: 7.2.16]
A hedging relationship can only be represented in the context of hedge accounting if all of the following qualitative characteristics are met:
- The hedging relationship consists only of permitted hedging instruments and permitted underlying transactions.
- At the beginning of the hedge relationship, there is a formal designation and documentation that relates to the company's risk management strategy and objectives for this hedge.
- The hedging relationship meets the requirements for effectiveness (see below) [IFRS 9: 6.4.1]
Only contracts with external parties from the reporting company's perspective can be designated as hedging instruments. [IFRS 9: 6.2.3]
Hedging instruments can be derivative (with the exception of certain written options) or non-derivative financial instruments of the FVTPL category. However, this does not apply to financial liabilities for which the fair value option was exercised and whose changes in value due to creditworthiness are recognized in other comprehensive income. If foreign currency risks are hedged, non-derivative financial instruments (with the exception of equity instruments for which the FVOCI option was exercised) can also be designated as hedging instruments with regard to the foreign currency component. [IFRS 9: 6.2.1-6.2.2]
Under IFRS 9 it is possible to designate a portion (e.g. 60%) of a hedging instrument. A pro-rata designation (e.g. the cash flows of the first six years of an instrument with a ten-year remaining term) is not permitted. In the case of options, designation can only be made with regard to the intrinsic value; likewise, only the spot rate component of a forward transaction can be designated. Foreign currency base spreads can also be excluded from the designation of the hedging instrument. [IFRS 9: 6.2.4] For accounting in such cases, see below.
A combined designation of derivative and non-derivative financial instruments or parts thereof as hedging instruments is also permitted. [IFRS 9: 6.2.5]
A combination of acquired and written options does not qualify as a hedging instrument if, viewed as a whole, there is a net written option. [IFRS 9: 6.2.6]
Recognized assets and liabilities, unrecognized firm commitments, highly probable expected transactions and net investments in a foreign business operation represent permissible underlying transactions, provided they can be reliably measured. [IFRS 9: 6.3.1-6.3.3]
In principle, basic transactions must also exist vis-à-vis external parties. As an exception to this, however, intra-group monetary items can be designated as underlying transactions at group level against foreign currency risks if income or expenses from foreign currency translation are not completely eliminated as part of the consolidation in the group's statement of comprehensive income. The same applies to highly probable expected intra-group transactions in a foreign currency from the point of view of a party involved in the transaction, if the foreign currency risk from this affects the Group's statement of comprehensive income. [IFRS 9: 6.3.5 -6.3.6]
Underlying transactions can either be designated as a whole or with regard to certain components. These can be separable and reliably assessable risk components (regardless of whether they originate from financial or non-financial underlying transactions), certain contractual cash flows or parts of a nominal amount. [IFRS 9: 6.3.7]
A group of transactions (including the resulting net positions) only constitutes a permissible underlying transaction if
- the group consists of transactions which, viewed individually, represent permissible underlying transactions;
- the group’s business is managed jointly at group level for risk management purposes; and
- In the case of a cash flow hedge over a group consisting of transactions, the variability of the cash flows is not roughly proportional to the variability of the cash flows of the group as a whole:
- the foreign currency risk is hedged; and
- The designation of this net position shows the reporting period in which it is expected that the expected transactions will affect the statement of comprehensive income. In addition, the type and scope of the transactions must be documented. [IFRS 9: 6.6.1]
Groups can also lead to net positions if the cash flows of the underlying transactions cancel each other out. This can lead to a complete compensation. In this case, there is a net zero position which, under certain conditions, can be designated as such even without hedging instruments. [IFRS 9: 6.6.6]
In the case of a net position, the hedged risks of which affect different positions in the statement of comprehensive income, all income and expenses from the hedging are shown in a separate position in the statement of comprehensive income, which must be distinguished from the positions affected. [IFRS 9: 6.6.4]
An aggregated position consisting of an underlying transaction as described above and a derivative can also be designated as the underlying transaction. [IFRS 9: 6.3.4]
Accounting for qualifying hedging relationships
There are three types of hedging relationships:
Fair value hedge: This is the hedge of the risk of a change in the fair value of recognized assets or liabilities or an unrecognized firm commitment or a component of these transactions that is attributable to a specific risk and affects the profit or loss for the period (or the other result in the event an equity instrument for which the FVOCI option was exercised). [IFRS 9: 6.5.2 (a) and 6.5.3]
In the context of a fair value hedge, the income and expenses of the hedging instrument are recognized in profit or loss for the period (or in other comprehensive income in the case of an equity instrument for which the FVTOCI option was exercised). The expenses and income resulting from the hedge with regard to the underlying transaction change its book value and are also recognized in profit or loss for the period. However, if the underlying transaction is an equity instrument for which the FVTOCI option was exercised, the expenses and income remain in other comprehensive income. If the underlying transaction is an unrecognized firm obligation, the cumulative expenses and income from the hedge are recognized as an asset or liability and the offsetting entry is made in profit or loss for the period. [IFRS 9: 6.5.8]
If the underlying transaction is a financial instrument that is valued at amortized cost, the book value adjustment made on the basis of the hedge (hedge adjustment) dissolved in profit or loss for the period using an adjusted effective interest rate. The amortization can begin as soon as the first book value adjustment has taken place. Amortization must begin at the latest if no further book value adjustments are made for the underlying transaction. [IFRS 9: 6.5.10]
Cash flow hedge: This is the hedge of a risk with regard to the variability of cash flows that can be traced back to a certain risk, which assets or liabilities or a highly probable expected transaction in each case in whole or in part (e.g. all or only part of the future interest payments from a variable-rate loan) and may affect the profit or loss for the period. [IFRS 9: 6.5.2 (b)]
The portion of the expenses and income of the hedging instrument that represents the effective part of the hedge is recognized in other comprehensive income. Nevertheless, the related item in other comprehensive income is adjusted based on the lower absolute amount from:
- the cumulative expenses or income from the hedging instrument since the start of the hedging relationship; and
- the cumulative change in the fair value of the underlying transaction since the start of the hedging relationship.
The parts of the expenses and income not recognized in other comprehensive income are recognized as ineffectiveness in the profit or loss for the period.
If a secured expected transaction later leads to the recognition of a non-financial item or if a firm obligation becomes a fixed obligation for which a fair value hedge is designated, the amount previously recognized in other comprehensive income is included in the acquisition costs or other book value of the respective asset or reclassified according to the respective liability. In all other cases, the amount recorded in other comprehensive income is reclassified to profit or loss in the same period as the hedged cash flows are recorded there. [IFRS 9: 6.5.11]
If a cash flow hedge is terminated and the future hedged cash flows are still expected, the amount recorded in other comprehensive income remains there until the hedged cash flows occur. If the secured future cash flows are no longer expected to occur, the amount recognized in other comprehensive income is immediately reclassified to profit or loss for the period. [IFRS 9: 6.5.12]
To hedge the foreign currency risk of a firm commitment, you can choose between a fair value hedge or a cash flow hedge. [IFRS 9: 6.5.4]
The Hedging the net investment in a foreign business operation (as defined in IAS 21), including the hedge of a monetary item that is accounted for as part of the net investment, is shown in a similar way to a cash flow hedge:
- The parts of the expenses and income of the hedging instrument that are considered to be effective are recorded in other comprehensive income; and
- the ineffective part is recognized in profit or loss for the period. [IFRS 9: 6.5.13]
The cumulative expenses and income of the hedging instrument, which relate to the effective part of the hedge, are reclassified to the result for the period in the event of (partial) disposal of the foreign business operation. [IFRS 9: 6.5.14]
Requirements for the effectiveness of hedging relationships
To qualify for hedge accounting, the hedging relationship must meet the following requirements for effectiveness at the beginning of each hedging period:
- There is an economic connection between the underlying transaction and the hedging instrument;
- The default risk does not dominate the changes in value that result from the economic hedge; and
- The hedging rate (hedge ratio) accurately reflects the amount of the underlying transaction used for the actual economic hedge and the amount of the hedging instrument. [IFRS 9: 6.4.1 (c)]
According to IFRS 9, it is not necessary that the retrospective effectiveness is within a certain range.
Recalibration and termination
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