www.pwc.co.uk _ IFRS 9 – Financial Instruments Haseeb Mohammed 12 September 2017
Introduction • You will be required to assist Ms Debt and Mr Equity on their accounting adventures today. • Ms Debt and Mr Equity work as part of the technical team at PwC Trinidad. They receive assignments and report to Mr Pess E Mystic. • They will be visiting various islands in the Caribbean to assist clients with accounting • issues. Ms Debt Mr Equity Introduction PwC 2
IFRS 9 – Financial Instruments • Ms Debt and Mr Equity work as part of the technical team at PwC Trinidad. • Ms Debt and Mr Equity specialises in accounting for financial instruments • Our clients need assistance in understanding and applying the requirements of IFRS 9 – Financial Instruments. • You will have help Ms Debt and Mr Equity on this assignment as they have been selected to assist. • Tony DeBell is the head of the Technical team and will be checking in with Ms Debt and Mr Equity during the assignment. Spot Tony while using either the moustache or bow tie during the adventure to earn bonus points!!! IFRS 9 – Financial Instruments PwC 3
Financial Instruments under IFRS Test your knowledge 1 Help Ms Debt and Mr Equity determine if the following statement relating to accounting for Financial Instruments under IFRS is either TRUE or FALSE. IAS 32 covers the presentation and disclosure of financial instruments under the IFRS framework. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 4
Financial Instruments under IFRS Test your knowledge 2 Help Ms Debt and Mr Equity determine if the following statement relating to accounting for Financial Instruments under IFRS is either TRUE or FALSE. IAS 39 covers the recognition and disclosure of financial instruments under the IFRS framework. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 5
Financial Instruments under IFRS Test your knowledge 3 Help Ms Debt and Mr Equity determine if the following statement relating to accounting for Financial Instruments under IFRS is either TRUE or FALSE. IFRS 7 covers the disclosure of financial instruments under the IFRS framework. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 6
IFRS 9 – Financial Instruments Test your knowledge 4 How many phases were there in the IASB’s project for the new financial instruments standard (IFRS 9)? (a) 2 (b) 3 (c) 4 (d) 5 IFRS 9 – Financial Instruments PwC 7
IFRS 9 – Financial Instruments Test your knowledge 5 What topic was being covered in the second phase of the IASB’s project for IFRS 9 ? (a) Impairment (b) Classification and Measurement (c) Hedging (d) De-recognition IFRS 9 – Financial Instruments PwC 8
The IFRS 9 Journey……. Nov 2009 Jan 2018 Nov 2012 Jan 2011 Nov 2013 C&M of IFRS 9 ED on C&M Supplemental IFRS 9 on financial effective document on Limited hedge accounting assets date amendments impairment and own credit to IFRS 9 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Oct 2010 Nov 2009 Mar 2013 July 2014 C&M of ED on ED on IFRS 9 financial impairment Expected final liabilities & credit losses standard derecognition IFRS 9 – Financial Instruments PwC 9
IFRS 9 – Financial Instruments Recognition of financial instruments Embedded Impairment derivatives Hedging Measurement Derecognition of financial of financial instruments instruments IFRS 9 – Financial Instruments PwC 10
IFRS 9 – Financial Instruments What we will be covering today Financial assets classification and measurement recap under IAS 39 Financial assets classification and measurement under IFRS 9 - Debt instruments - Equity instruments Financial liabilities classification and measurement under IFRS 9 New expected credit loss impairment model Transitional provisions and implementation challenges IFRS 9 – Financial Instruments PwC 11
IFRS 9 – Financial Instruments IAS 39 - Recap IFRS 9 – Financial Instruments PwC 12
Financial Instruments -IAS 39 - Recap Introduction Objective Classification of financial assets Definitions IAS Embedded derivatives 39 Recognition and Measurement Derecognition Measurement of Hedging financial assets Effective date and transition IFRS 9 – Financial Instruments PwC 13
IFRS 9 – Financial Instruments Board Exercise 1 Instructions Help Ms Debt and Mr Equity include the items • under the relevant category based on the requirements of IAS 39 Use the pieces provided for this exercise. • You will have 8 minutes. • 1 point for each correct answer. • IFRS 9 – Financial Instruments PwC 14
IFRS 9 – Financial Instruments SOLUTION Book exercise 1 Category of Measurement basis Normal changes financial in carrying Initial Subsequent asset under amount recognition Measurement IAS 39 recorded in IFRS 9 – Financial Instruments PwC 15
Classification & Measurement – overview Financial assets IAS 39 IFRS 9 Held to Maturity Amortised cost Loans and receivables P&L Available for Sale Fair Value At fair value through OCI P&L IFRS 9 – Financial Instruments PwC 16
IFRS 9 – Financial Instruments Classification & Measurement IFRS 9 – Financial Instruments PwC 17
Financial Instruments under IFRS Test your knowledge 6 Help Ms Debt and Mr Equity determine if the following statement relating to IAS 39 is either TRUE or FALSE. IAS 39 was the first International Accounting Standard issued by the International Accounting Standards Board covering the recognition and measurement of Financial Instruments. IAS 39 was a principle based standard. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 18
Financial Instruments under IFRS Test your knowledge 7 Help Ms Debt and Mr Equity determine if the following statement relating to accounting for Financial Instruments under IFRS is either TRUE or FALSE. IFRS 9 replaces the classification and measurement models for financial assets in IAS 39. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 19
Financial Instruments under IFRS Test your knowledge 8 Help Ms Debt and Mr Equity determine if the following statement relating to accounting for Financial Instruments under IFRS is either TRUE or FALSE. IFRS 9 focuses on a company’s business model for managing financial assets. FALSE TRUE OR IFRS 9 – Financial Instruments PwC 20
IFRS 9 – Financial Instruments Classification and Measurement IFRS 9 accounting treatment distinguishes between the following types of instruments Equity instruments Debt instruments IFRS 9 – Financial Instruments 21 PwC
IFRS 9 – Financial Instruments Classification & Measurement – Debt Instruments IFRS 9 – Financial Instruments PwC 22
Overview of model IFRS 9 Is objective of entity’s Is the financial asset held to business model to hold achieve an objective of both NO collecting contractual cash NO the financial asset to collect contractual cash flows and selling financial assets? flows? YES YES NO Do contractual cash flows represent solely principal and interest? FVPL YES YES YES Does the company apply the fair value option to eliminate an accounting mismatch? NO NO FVOCI Amortised Cost PwC 23
An entity’s business model Key Points Determined at a level that reflects how groups of Determined by an financial assets are entity’s key management managed to achieve a personnel business objective Based on how the assets are managed and the Not at an instrument by assets performance are instrument basis. reported to them The business model for managing financial assets is a matter of fact and not merely an assertion. IFRS 9 – Financial Instruments PwC 24
Considerations for determination of the business model How the performance of The risks that affect the business model is the business model evaluated and reported and the way that those to key management risks are managed personnel How managers of the business are compensated eg compensation based on the FV of the asset managed. Consider all Not determined available based on a single evidence at factor/activity assessment date IFRS 9 – Financial Instruments PwC 25
Financial Instruments under IFRS Test your knowledge 9 Help Ms Debt and Mr Equity determine if the following statement relating to IFRS 9 is either TRUE or FALSE. Under IFRS 9 there are four possible business models that an can choose from in order to classify its debt instruments. TRUE FALSE OR IFRS 9 – Financial Instruments PwC 26
IFRS 9 - Classification & Measurement Debt instruments – IFRS 9 business model Hold to collect Hold to collect and sell IFRS 9 Business Fair value models through P&L IFRS 9 – Financial Instruments PwC 27
IFRS 9 - Classification & Measurement Steps in determining the business model Determine the objective of the business model Step 1 Assess whether the asset’s contractual cash flows represents solely principal and interest payments Step 2 (SPPI condition) Step 2 is necessary for financial assets or groups of financial assets to be classified at Amortised Cost or FVOCI IFRS 9 – Financial Instruments PwC 28
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