How corporates account for financial assets will change from 1 January 2018, when the new financial instruments standard, IFRS 9, comes into effect.
However, the challenges reach beyond accounting and may require changes to systems and processes. Now is the time for you to engage with the new standard.
We look at how corporates will be affected and how KPMG can help.
There will be major changes to how you classify and measure financial assets as well as how you assess them for impairment. The new IFRS 9 impairment model is forward-looking, being based on expected credit losses (ECLs) rather than actual losses incurred.
More opportunity may also arise for corporates to engage in hedging activities. IFRS 9’s new hedge accounting model is more closely aligned with an entity’s risk management strategies, and offers some simplifications to hedge accounting.
Extensive new disclosure requirements will apply – systems and control changes may be necessary to capture the data required.
How an investment is classified and measured will now depend on its contractual cash flows as well as how it is managed by the entity. You will need to review the contractual terms of each of your investments as well as analyse and document the business model for managing those investments.
Investments (except for those in equity instruments) are within the scope of the new impairment model. Impairment losses are recognised based on 12-month ECLs for investments that have not suffered a significant increase in credit risk and lifetime ECLs for those that have.
Trade receivables will generally meet the criteria to be held at amortised cost, but care is needed if contractual terms are complex or if receivables are securitised or factored.
Bad debt provisions are likely to be larger and more volatile and are measured based on lifetime ECLs if the trade receivables have no significant financing component. You will need to redesign your provisioning methodology for trade receivables in order to comply with the new standard.
Read IFRS 9 for corporates to understand how you might be affected, and the actions you may need to take. It highlights how our cross-functional team of experts can help you with the accounting and operational challenges of the new standard.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.
For KPMG’s most recent publications on the new standard, visit our IFRS – Financial instruments hot topics page.
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