The Staff acknowledge these concerns. IFRS 9 will bring profound change to financial instrument accounting; financial asset impairment calculated on an expected loss basis, some easing of hedge accounting rules, and fewer categories for assets. Introduction 5 2. We work for hotels, restaurants, bars, professional sports, betting and gaming and travel businesses. Whatever point in its lifecycle your business is at, we can help you achieve more. Financial instruments outside the scope of FRS 139 The financial instruments outside the scope of FRS 139 are listed in FRS 139.2. As such, the risk of unintended consequences for treating a modified financial liability in the same way is low. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox. On 19 November 2013, the IASB issued IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) amending IFRS 9 to include the new general hedge accounting model, allow early adoption of the treatment of fair value changes due to own credit on liabilities designated at fair value through profit or loss and remove the 1 January 2015 effective date. Some respondents pointed out that there is a conflict between the requirements of paragraphs B5.4.6 and B3.3.6 of IFRS 9. IFRS 9 Financial Instruments is one of the most challenging standards because it’s sooo complex and sometimes complicated. Definition. One IC member also stated that there is no point sending the issue back to the Board which would only delay the inevitable. The IC previously concluded that this is a principle that underlies amortised cost measurement. Any entity could have significant changes to its financial reporting as the result of this standard. These form part of the Memorandum of Understanding, which sets out a roadmap for convergence between IFRS and US GAAP. The major comments raised were as follows: Some respondents disagreed with applying IFRS 9.B5.4.6 to a modification of a financial liability that did not result in derecognition. In both cases expl 9 and expl 10 bank must recognize P/L from modification p.5.4.3 IFRS 9.Does it mean that in expl 9: bank recognizes 4 416 977 – losses, expl : bank recognizes 10 6 078 000 – profit? They also see no compelling reason to provide specific transition requirements for only this aspect of the classification and measurement requirements of IFRS 9. specifically, the request asked whether, applying IFRS 9 Financial Instruments, an entity recognises any adjustment to the amortised cost of the financial liability arising from such a modification or exchange in profit or loss at the date of the modification or exchange. The new debt instrument is recorded at fair value and any difference from the carrying amount of the extinguished liability, including any non-cash consideration transferred, is recorded in profit or loss. Each word should be on a separate line. Other respondents noted that when the modification is as a result of a change in the interest rate charged, applying paragraph B5.4.6 would not represent the substance of the transaction. The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. As such, the Staff do not propose any change to the tentative agenda decision in this regard. MFRS 9 will be effective for financial period beginning on or after 1 January 2018 with early application permitted. This has given rise to questions about how to account for the modification of financial liabilities that have not been derecognised – specifically whether the difference between the original and modified amortised cost should be recognised in profit or loss immediately instead of being amortised over the remaining term. Earlier application is permitted for annual periods beginning after 24 July 2014 but before 1 January 2019. IFRS IN PRACTICE 2016 fi IFRS 9 FINANCIAL INSTRUMENTS 7 2. The constant pressure to deliver value for money, the role of the private sector in service delivery and intense public scrutiny all represent challenges and opportunities for public sector organisations in central government, local government and... 200 UK and international real estate specialists advising clients on domestic and international assurance, tax and transactional matters. Many members were troubled by the large number of comment letters received which did not support the tentative agenda decision. Hold to collect business model 13 3.1.2. Adapting the way your firm or partnership operates to manage the impact of new technologies and increased competition is not easy. All financial instruments are initially measured at fair value as per the requirements in IFRS 13, except trade receivables that do not have a significant financing component. The Staff recommend that the IC finalise the agenda decision. 39 Financial Instruments: Recognition and Measurement nor IFRS 9 do provide sufficient guidance to distinguish when a modification of a financial instrument results in its derecognition. Please read our. Managing commodity price volatility, international operations and regulatory compliance in the most challenging markets in the world is not easy. bank borrowings). Derecognition of financial instruments upon modification (IAS 39 Financial Instruments: ... modification of a financial asset results in derecognition, applying IAS 8 requires judgement to develop and apply an accounting policy. They believe that this paragraph applies to a revision of the estimated cash flows according to the original (unmodified) contractual terms of a financial instrument, which is different in nature from an exchange or modification of a financial instrument. Re-estimations of cash flows arising due to changes in floating market rates of interest will still be amortised over the life of the financial instrument. We also produce a series of... Our Life Sciences team are passionate about this diverse and innovative sector. Except as specified in paragraph 3856.55. Scope 9 3. Modification gain or loss is the amount arising from adjusting the gross carrying amount of a financial asset to reflect the renegotiated or modified contractual cash flows.. Some respondents disagreed with applying IFRS 9.B5.4.6 to a modification of a financial liability that did not result in derecognition. In other words, on the date of modification, no loss is recognised for costs or fees incurred, whereas a gain/loss is recognised for modifications to the future contractual cash flows. Consequently, they believe that there are grounds to account for these two types of changes differently. Contract modifications under IFRS Financial Reporting Faculty, 17 December 2020 Explore the accounting implications of contract modification scenarios relating to revenue, financial instruments, leases and employment contracts. A “substantial” debt modification or a debt exchange with “substantially” different terms is accounted for as an extinguishment of the original financial liability. 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