Key considerations to focus on when implementing the new financial instruments standard
In a matter of weeks, the new financial instruments standard, IFRS 9, will change the way corporates – i.e. non-financial sector companies – account for their financial assets and financial liabilities.
As discussed in our blog post, the hedge accounting changes are likely to have the biggest impact for corporates, but companies will also need to analyse and document the impact of the new classification and measurement, and impairment requirements.
By now, your implementation project should be well advanced. To help you drive it to the finish line, we’ve pulled together a list of key considerations that you need to focus on, along with a more detailed practical guide (PDF 1.4 MB).
Corporates are likely to experience the impact of IFRS 9 in the following areas.
Classification and measurement
Companies will need to assess their business model for managing financial assets, and whether the cash flows from the financial assets are solely payments of principal and interest (SPPI), in order to classify them. The classification criteria are significantly different from those under IAS 39 Financial Instruments: Recognition and Measurement.
The requirements for financial asset impairment have also changed significantly, moving from an ‘incurred’ to an ‘expected’ credit loss (ECL) model. This means that – unlike under IAS 39 – a loss event need not occur before an impairment loss is recognised under IFRS 9.
If a company chooses to apply IFRS 9’s general hedging model, more risk management strategies could qualify for hedge accounting. This is because the new hedging model is more closely aligned with a company’s risk management objectives.
Unexpected changes may also arise as the new standard has fundamental differences compared with existing financial instruments accounting. Therefore, it’s essential that the accounting impacts are considered in detail, as well as the broader business impacts – e.g. the impact on tax.
Our SlideShare IFRS 9 Financial instruments for corporates – Are you good to go? outlines the key considerations that corporates need to focus on. You can also download a PDF version (339 KB).
Our IFRS 9 for corporates – Application guidance (PDF 1.4 MB) provides more detailed and practical insight, using examples to illustrate how corporates might apply the new requirements.
Please speak to your usual KPMG contact if you would like to find out more about how KPMG can help your business.