IFRS 9 Financial Instruments - TGIA

3y ago
117 Views
21 Downloads
2.15 MB
126 Pages
Last View : 4d ago
Last Download : 5m ago
Upload by : Jacoby Zeller
Transcription

IFRS 9 Financial InstrumentsThai General Assurance Association9 March 2017

What impact will IFRS 9 have on your business?More datarequiredIFRS 9Morejudgmentinvolved 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.Detailedguidancewhich may bedifficult tounderstandand apply1

Getting prepared for IFRS 9Impact assessmentDevelop knowledgeand skills related toIFRS 9 principlesParallel run,identify andresolve issuesImplementationefforted 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.2

AgendaSession1Overview of IFRS 9 and implementation plan in Thailand2IFRS 9 Classification and Measurement3IFRS 9 Impairment4IFRS 9 Hedge accounting5Transition requirements (with applying IFRS 9 with IFRS4 phase II)6Concluding remark 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.3

IASB project on Financial InstrumentsThe IASB issued the final version of IFRS 9 Financial Instrumentson July 24, 2014.Classification and MeasurementImpairmentGeneral Hedge AccountingMacro Hedge Accounting 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.Separate project4

Development of IFRS 9 Financial InstrumentsIFRS 9 Financial InstrumentsPre 2013Classification Finalized20142018LimitedAmendmentsNew al HedgeAccountingMacro Hedging 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.PhaseFinalizedDiscussionPaper5

Transition and Effective DateIn September 2016 the IASB issuedamendments that insurers have thepossibility to defer IFRS 9 to theearlier of the effective date of IFRS 4Phase II or 1 January 2021.Unless permitted or defer it IFRS 9 shall beapplied for annual periods beginning on orafter1 January 2018RetrospectiveEarly application permitted Restatement of prior periods has been simplified Application of all requirementsof IFRS 9 (2014) Exemption: Financial liabilitiesdesignated at fair value throughprofit or loss 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.6

IFRS 9 Overview 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.7

IFRS 9 key considerationMajor amendmentsAmendments compared to IAS 39?ScopeNoneRecognition & derecognitionNoneClassification andmeasurement of financialassetsNew model regarding the classification and measurement based on: the entity’s business model (portfolio perspective), and the contractual cash flow characteristics (CCC criterion) of the individual financial assetClassification andmeasurement of financialliabilities No amendments regarding classificationNew requirements for the accounting of changes in the fair value of an entity’s own debtwhere the FVO has been applied (“own credit issue”)Embedded derivativesBifurcation of embedded derivatives needs to be assessed for hybrid contracts containing ahost that is a financial liability or a host that is not an asset within the scope of IFRS 9 (hybridcontracts with a financial asset as a host contract are classified in their entirety based on theCCC criterion)Amortised costmeasurementNoneImpairmentChange to expected loss model Hedge Accounting (HA) 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.New model more closely aligns HA with risk management activitiesAccounting policy choice to apply the hedge accounting model inIAS 39 in its entirety or the accounting for portfolio fair value hedges under IAS 39 ifapplying IFRS 9 hedge accountingSeparate active project on accounting for macro hedging activities (currently not part ofIFRS 9)8

IFRS 9 Classificationand Measurement

What will you learn?Obtain a workingknowledge ofclassifying financialinstruments into theappropriatecategories underIFRS 9Identify and discussthe impact on clientsrelated to the keyprovisions of C&MClassification andMeasurementObtain a workingknowledge ofmeasurementrequirements underIFRS 9 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.1010

Why make changes to IFRS 9?Classification and MeasurementIAS 39 Contains many differentclassification categories andassociated measurement andimpairment requirements,reducing comparability Application issues arose onclassification andmeasurement of financialassets Difficult to understand andapply in practice 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.IFRS 9 Reduces the complexity ofclassification categories andmeasurement requirements Makes the classification andmeasurement modelcompatible to a singleimpairment model Improves comparability andmakes reporting easier tounderstand for readers11

Rule-BasedComplex and difficult toapplyOwn credit gains and lossesrecognized in P&L for fairvalue option (FVO) liabilitiesComplicated reclassificationrules 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.IFRS 9 ClassificationIAS 39 ClassificationWhat are the differences?Principle-basedClassification based onbusiness model and natureof cash flowsOwn credit gains and lossesrecognized in OCI for FVOliabilitiesBusiness model-drivenclassification12

Classification and Measurement—overviewFinancial assetsAre the cash flowsconsidered to be solelyprincipal and interest(“SPPI”)?What is the businessmodel?Hold to collectcontractual cashflowsYesAre alternative optionsavailable?Amortized CostFVTPL option(in case of acc.mismatch)Hold to collectcontractual cashflows AND to sellFVTOCIFVTPL Option(in case of acc.mismatch)All other strategiesFVTPLNoCertain modificationsof the relationshipbetween principal andinterest arepermissibleWhat is themeasurement category?FVTPLNew 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.NewFVOCI option forequity investments(dividends in P&L)New in thefinal versionof IFRS 913

Contractual cash flow characteristicsInterest cancomprise a returnfor: Time value ofmoneyCredit riskLiquidity riskAmounts to coverexpenses andprofit marginContractual termsthat change thetiming or amount ofcash flowsReturnsconsistent withbasic lendingarrangementContractual cashflows are solelypayments of principaland interest(SPPI)key characteristicsAssess on anasset by assetbasis.Modified timevalue of money(TVM) 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.1414

Contractual changes that meet the SPPI criterionPrepaymentfeature Permits the issuer to prepay the debt instrument or the holderto put the debt instrument back to the issuer before maturity;and The prepayment amount substantially represents unpaidamounts of principal and interest on the principal amountoutstanding–which may include reasonable additionalcompensation for the early termination of the contract.Termextensionfeature Permits the issuer or the holder to extend the contractualterm; and Results in contractual cash flows during the extension periodthat are SPPI on the principal amount outstanding. 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.1515

Business ModelUnless fair value optionselected to reduce anaccounting mismatchFVTPLCash flows SPPI Both collectingcontractual cashflows and sellingfinancial assetsFVTOCIGreaterfrequency andvolume of salesNot collecting cashflows and sellingfinancial assetsFVTPLCash flows SPPI Collect contractualcash flowsAmortized costSales infrequent orinsignificant in valueBusinessmodelmanagingfinancialassetsAssess on aportfolio basis (notindividually)Sales occur due toincrease in credit risk 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.1616

Business modelBusiness model is determined by the entity‘skey management personnel (as defined in IAS 24)A business model can typically be observed throughthe activities that an entity undertakes to achieve itsbusiness objective, e.g.Management ofgroups offinancial assetsto achievea particularbusinessmodelEvaluation of performance of thebusiness model and internal reportingBusinessmodelassessmentaccording toIFRS 9Risk that affect the performance of thebusiness model and management ofthose risksHow managers are compensated (e.g.based on fair value) 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.17

Fair Value Through Other Comprehensive IncomeA new measurement category Fair Value through Other Comprehensive Income(FVTOCI) has been introduced in July 2014.Debtinstrumentsmeasured atFVTOCIInitial andsubsequentlymeasured atFair ValueInterestrevenue, FXG&L andimpairmentG&Lrecognized inP&LAll other G&Lrecognized in OCI 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.18

IFRS 9 requirements – Case study 1Equity securities classified and measured at FVTOCIFirst set of circumstances Contractual cash flows NOT solely payments of principle and interest Non-held for trading investment in an equity instrument that is designated at FVTOCI atinitial recognitionAccounting Classified as FVTOCI Dividends recognized in profit or loss All other gains/losses recognized in OCI Upon de-recognition amount in OCI are NOT reclassified to profit or loss, but will bebrought into tax when derecognized 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.19

IFRS 9 requirements – Case study 2Debt securities classified and measured at FVTOCI (Cont’d)Second set of circumstances Contractual cash flows solely payments of principle and interest Held within a business model whose objective is achieved by both collecting contractualcash flows and selling financial assets NOT irrevocably designated at FVTPL at initial recognitionAccounting Classified as FVTOCI Interest, impairment and foreign currency gains/losses recognized in profit or loss All other gains/losses recognized in OCI Upon de-recognition amount in OCI ARE reclassified to profit or loss, but will then bebrought into tax 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.20

Recap—other measurement modelsFVTPL Initially and subsequently measured at fair value. All G&L recognized in P&L.Amortized cost Initially measure at fair value. Calculate interest revenue using the effective interestmethod, applied to the gross carrying amount of the asset. Purchased or originated credit-impaired financial assets:apply the credit-adjusted effective interest rate to amortizedcost from recognition. Subsequently credit-impaired financial assets: apply thecredit-adjusted effective interest rate to the amortized cost ofthe financial asset. Instruments which meet the amortized cost criteria must bemeasured at amortized cost unless the fair value option iselected. 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.21

Measurement of equity instrumentsFVTPLFVTOCIEstimateFVnot atcost Equity investments are typically held at FVTPL as they fail thecontractual cash flow test. Derivative instruments linked to unquoted equity investments mustbe held at FVTPL. Irrevocable option to elect to measure an equity investment atFVTOCI–make at initial recognition. Recognize dividend income through P&L. Cost may be an appropriate estimation of FV for unquotedinvestments if there is insufficient recent info, or if there is a widerange of possible FVs. Indicators that this may not be appropriate are provided in IFRS 9B5.2.4. (Be careful!)including changes to market, performance, global economy,economic environment, competitors, technical progress 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.22

Recognition and measurement financial assetsFair Value according to IFRS 13Initial recognitionplus transactions costsplus transactions costsplus transactions costsSubsequentmeasurementAmortized costFVTOCIFVTPLFVTOCI (EquityInstrument)Statement of financialpositionAmortised costFair valueFair valueFair valueP&LEffective interestmethod, impairment &foreign exchangedifferencesEffective interestmethod, impairment &foreign exchangedifferences(all)Fair value changesDividendsOCI---(other)Fair value changes---(all)Fair value changesRecycling---Yes---No 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.23

Reclassification2Entity’s seniormanagementchanges business model1External or internalchanges which aresignificant to the entity’soperations3Reclassification of financialassets prospectively from theThe first day ofthe first reportingperiod followingthe change inbusiness modelreclassification datedemonstrable to external parties 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.24

When is reclassification allowed?AssetsWhen an entitychanges its businessmodel for managingfinancial assets.LiabilitiesNEVERCommon examples of changes that arenot reclassifications An item which was previously a designated and effective hedginginstrument in a cash flow hedge or net investment hedge, that nolonger qualifies; An item that becomes a designated and effective hedging instrumentin a cash flow hedge or net investment hedge; and Changes in measurement–credit exposure designated as FVTPL 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.25

Reclassification of financial assets Reclassificationshould beinfrequentDetermined byseniormanagementfollowing internal/external changesProspectivebut only appliedonce thebusiness modelhas changedReclassificationpossible when,and only when,the entity’sbusiness modelfor financialassets changesThe changesmust bedemonstrableto externalparties 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.EXAMPLES:AcquisitionsDisposalsTermination ofbusiness linesThe changesmust besignificantto the entity’soperations-Would NOT include:Change of intention relating toparticular assetsTemporary disappearance of aparticular market for FAsTransfer of FAs between parts ofthe business with different models.26

Reclassification of financial assetsAmortizedCost toFVTOCI toFVTOCI3. No adjustment toeffective interest rateAmortizedCostNo reclassification possible where investmentsin equity instruments have been designatedFVTOCI at initial recognitionFVTOCI to 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.1. Recognize @ FV2. Difference betweenprevious carryingamount and FVrecognized in OCIFVTPL1. Recognize @ closingFV amountsalready in OCI2. No adjustment toeffective interest rate3. Only impacts OCI,not P&L1. Continues to bemeasured at fairvalue2. IAS 1 reclassificationadjustment ofcumulative amountsfrom OCI to P&L27

Reclassification of financial assetsAmortizedCost toFVTPL toFVTPLAmortizedCostNo reclassification possible where assets havebeen designated FVTPL to prevent anyaccounting mismatches.FVTPL to 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.FVTOCI1. Recognize @ FV2. Difference betweenprevious carryingamount and FVrecognized in P&L.1. Closing FV becomesthe new AC openinggross carrying amount.2. A new EIR andmeasurement of lossallowance forexpected credit losseswill be required1. Continue to measureat fair value.2. A new EIR andmeasurement of lossallowance forexpected credit losseswill be required28

Classification and measurement of financial liabilitiesThe IFRS 9 classification and measurement model for financial liabilities is thesame as under IAS 39 except for the following: The presentation of fair value changes for own credit; Liabilities presented as equity (e.g., puttables) must be held at FVTPL; and Derivative liabilities over unquoted equities can no longer be measured atcost.Fair valueoptionFinancialliabilitiesMeasure atFVTPL(if specific criteriaare met)Other FVgains/lossespresented in P&LAmortizedcostHeld ontracts 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.FV gains/lossesrelated to credit riskis presentedseparately in OCICannot be recycledto P&L and can beapplied in isolationMeasure atFVTPLMeasure at the higher of: Amount of loss allowance; Amount initially recognized,less cumulative incomerecognized29

Embedded derivativesDefinition: a component of a hybrid contract that includes a non-derivative host.Is the host contract afinancial asset within thescope of IFRS 9?Classify andmeasure the hybridcontract as onefinancial asset.YNIs the host contract a financialliability within the scope ofIFRS 9?YNWould a separate instrument withthe same terms as the embeddedderivative meet the definition of aderivative?Is the liability held at FVTPL,either because it is held fortrading, or because the entityhas designated it as FVTPL?YAccount for thehybrid contract asone instrumentmeasured at FVTPL.NYIs the embedded derivative closely related to the hostcontract?YNNAccount for the hybrid contractmeasured in line with thestandard that is relevant to thehost contract. 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.Account for the host contract in line with the relevantstandard and account for the embedded derivativeseparately as a derivative30

DisclosuresClassification and MeasurementInformation to bepresented in theperformancestatement(IAS 1.82)Financial liabilitiesdesignated atFVTPL(IFRS 7.10-10A)Investments inEquity instrumentsat FVTOCI(IFRS 7.11A and 7.11B) 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd. When a financial asset is reclassified from amortized cost toFVTPL, recognize any gain or loss arising on revaluation as aseparate line item in OCI When a financial asset is reclassified from FVTOCI to FVTPL,disclose separately any transfers of amounts recognized in OCI toP&L Transfers of gains or losses within equity, including the reason fortransfer and the amounts involved Amounts presented in OCI that were realized at derecognitionduring the reporting period (if any) Disclose which investments in equity instruments that have beendesignated as FVTOCI and why Fair value of each such investment at the reporting date Dividends recognized during the reporting period Any transfers of cumulative gains or losses within equity andreasons why Disclose information about derecognized investments in equityinstruments measured at FVTOCI, including the reasons fordisposal, their FV at disposal, and the gain/loss on disposal31

DiscussionTalking points Familiarize with the criteria for measurement categories, then emphasize to your clientHowshould you address classification and measurementthat the criteria for classification into the appropriate measurement category aresignificantlydifferent to IAS 39 and highlight the key differences.your clients?How? withWhere?What?When? All financial assets should be assessed based on their cash flow characteristics and/or the business model.Whereshouldofyoustart?model and SPPI criteria may require significant The assessmentthe businessjudgement. Need to obtain information to support the objective of the business model adopted Need toassess the contractualprovisionsto determine whether the SPPI criterion isWhatinformationwill youneed?met. Early adoption of the ‘own credit’ amendment only should relieve some P&L volatilitycaused by fluctuations in an entity’s own credit risk (especially banks).Whenshouldyou adoptIFRS9? may allow entities to apply hedge Early adoptionof hedgeaccountingrequirementsaccounting where they could not have before, and to reduce P&L volatility. 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.32

IFRS 9 Classification and measurementChoices insurers need to make 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.33

Summary Classification andMeasurement Contractual cash flowBusiness ModelOwn credit 2016 Deloitte Touche Tohmatsu Jaiyos Audit Co., Ltd.Driven by business model and contractual cash flowcharacteristicso Amortized cost (collects cash flows, passes SPPI test)o FVTOCI (collects cash flows, sells instruments andpasses SPPI test)–or designated under FVOo FVTPL (not one of the above)Investments in equity instruments always at FVFVTOCI for non-trading equity investments by election For a cash flow to be SPPI–returns need to be consistentwith a basic lending arrangement Collecting contractual cash flowsSelling financial assetsCollecting contractual cash flows and selling financial assetsOr other models Changes in FV recognized in OCI for financial liabilitiesdesignated as at FVTPL34

IFRS 9 Impairment

What will you learn?Obtain a workingknowledge of thenew impairmentmodel underIFRS 9.Identify the impactof the keyprovisi

1 Overview of IFRS 9 and implementation plan in Thailand 2 IFRS 9 Classification and Measurement 3 IFRS 9 Impairment 4 IFRS 9 Hedge accounting 5 Transition requirements (with applying IFRS 9 with IFRS 4 phase II) 6 Concluding remark

Related Documents:

(a) IFRS 9 Financial Instruments (Part A); and (b) IFRS 15 Revenue from Contracts with Customers (Part B). Introduction 2 IFRS 17 is effective from 1 January 2021. An insurer can choose to apply IFRS 17 before that date but only if it also applies IFRS 9. 3 The paper considers components of IFRS 9 and IFRS 15 that are relevant to the

IFRS 17 basics IFRS 17 is the new accounting standard for Insurance Contracts published 18 May 2017 Replace the interim standard IFRS 4 (not standardized across jurisdictions) EU endorsement still under process Go-live 1st January 2022 18 May 2017 IFRS 17 Publication Effective application of IFRS 17 & IFRS 9 1st January 2022 IFRS 17 Go-live ! Transitory

IFRS and US GAAP: similarities and differences IFRS first-time adoption IFRS 1, First-Time Adoption of International Financial Reporting Standards, is the standard that is applied during preparation of a company's first IFRS-based financial statements. IFRS 1 was created to help companies transition to IFRS and provides practical

Adopting IFRS – A step-by-step illustration of the transition to IFRS Illustrates the steps involved in preparing the first IFRS financial statements. It takes into account the effect on IFRS 1 of the standards issued up to and including March 2004. Financial instruments under IFRS – A guide through the maze

IFRS 9 is the IASB’s response to the global financial crisis and represents a fundamental reconsideration of accounting requirements Page 3 01. Why IFRS 9 was introduced? IFRS 9 Financial Instruments

New IFRS Standards—IFRS 16 Leases Page 1 of 26 . Agenda ref 30E STAFF PAPER June 2019 IASB Meeting Project Comprehensive review of the IFRS for SMEs Standard Paper topic New IFRS Standards—IFRS 16 Leases CONTACT(S) Yousouf Hansye ykhansye@ifrs.org 44 (0) 20 7246 6470

(IFRS for SMEs 7.1, full IFRS IAS 7.10). So the user of the statement is able to evaluate the impact of the entity’s activities on the financial position (IFRS for SMEs 7.1, full IFRS IAS 7.11). This is an essential aspect for both the readers of the financial statements of t

Connecting an ASP.NET-form to a database Connecting an ASP.NET form created with SpreadsheetConverter to a database is very easy. We will do it in 3 steps: 1. Calculate and save the form contents into a database. 2. Retrieve previous entered data from the database, show it in the form and let the user edit it and recalculated and save it again. 3. Show all submitted entries so that we can .