Advisory Services on Treasury Operations and Financial Instruments

IFRS 9 has fundamentally changed the accounting for financial instruments. The 3 key areas changed by IFRS 9:

Classification & Measurement (amortised cost, fair value through other comprehensive income or fair value through profit or loss), Impairment (forward-looking expected credit loss model) and Hedge accounting (the rules have generally been simplified).

Classification & Measurement

IFRS 9 requires all financial assets to be measured:

• at amortised cost,

• at fair value through other comprehensive income, or

• at fair value through profit or loss.

Whether a financial asset is classified at amortised cost, at fair value through other comprehensive income or at fair value through profit or loss depends mainly on the business model assessment and the SPPI test (Solely Payments of Principal & Interest).

This may be the least complex area of the standard, but it can have a significant impact on banks and other financial institutions with significant financial assets on their balance sheets.

Impairment

IFRS 9 includes requirements for an impairment model that recognises credit losses earlier. The standard requires an expected loss model for asset impairment. The impairment requirements give companies more useful information in their financial statements about the expected credit losses on financial instruments, allowing them to identify financial risks earlier.

Hedge accounting

The general hedge accounting requirements added to IFRS 9 reflect the IASB's aim of simplifying hedge accounting. The standard aligns hedge accounting with the risk management activities undertaken by companies and provides useful information about a company's risk management strategies. The new hedge accounting model enables companies to better reflect their risk management activities in their financial statements and is more principles-based than the previous IASB model.

IFRS 9 offers an accounting policy choice: entities may continue to apply the IAS 39 hedge accounting requirements or apply IFRS 9. This is a choice that banks and other financial institutions need to consider.

How can we help?

Our team has experience in helping financial institutions successfully complete their transition to new accounting standards. In addition to calculating the right figures, we can guide you through the operational challenges. Our flexible and scalable methodology focuses on effective knowledge transfer so that you obtain lasting benefits.

We can help you with your IFRS 9 transition in the following areas:

• Technical and accounting knowledge

• Training

• Hedge accounting implementation

• Valuation of derivative instruments

• Valuation and impairment testing

• Impairment model design

• Impairment model validation

• Process, data and system design