Transcript Financial Instruments - Recognition and Measurement

September 2009
International Financial Reporting Standards
Financial Instruments:
Classification and
Measurement
1-4 September 2009
IASC Foundation
The views expressed in this presentation are those of the presenter,
not necessarily those of the IASC Foundation or the IASB
2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
Timetable
One project – three phases
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Project phase
Exposure Draft
Finalisation
1. Classification and
Measurement
July 2009
In time for 2009 year end
financial statements
2. Impairment
methodology
October 2009
In 2010
3. Hedge accounting
December 2009
In 2010
* The above is in addition to a project on derecognition of financial instruments.
ED Derecognition was published in March 2009.
2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
Classification and Measurement
Overview of proposed approach
Basic loan features
+
Managed on a
contractual yield basis
Amortised cost
(one impairment method)
3
FVO for
accounting
mismatch
No reclassification
All other instruments:
• Equities
• Derivatives
• Some hybrid contracts
•…
2009 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
Fair Value
(no impairment)
Equities:
OCI presentation
available
Classification and Measurement
Amortised cost criterion
• Basic loan features
– Contractual terms that give rise to cash flow amounts that
represent both principle and interest
– Interest represents consideration for:
– time value of money
– credit risk
• Managed on a contractual yield basis
– Business model is to manage and evaluate based on collection
or payment of contractual cash flows generated when holding
or issuing the instrument
– Not an instrument by instrument approach to classification
Classification and Measurement
Other features of proposed approach
• Embedded derivatives
– For hybrid contracts with financial hosts > Entire hybrid
contract assessed using proposed classification and
measurement model
– For hybrid contracts with non-financial hosts > Existing IAS 39
requirements retained
• Fair value option
– Retained to address accounting mismatches
Classification and Measurement
OCI presentation option
• Scope – investments in equity instruments not held for
trading
• Other features:
– option available instrument by instrument on initial
recognition
– no recycling, impairment or change in presentation
– dividends also recognised in OCI
2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
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Summary of key changes to IAS 39
IAS 39
Classification
Many categories each with different
measurement, presentation and
impairment methods
Measurement
Proposed approach
Two measurement bases: Amortised
cost (one impairment method) and Fair
Value.
Irrevocable option at initial recognition
to present fair value changes of some
equity instruments in OCI.
Impairment
Different impairment rules depending
on category and instrument type
Only debt instruments at amortised cost
are tested for impairment. One
impairment method.
Tainting
Tainting rules for held to maturity
investments
No tainting rules for assets measured
using amortised cost.
Reclassification
Some reclassifications
permitted/required
No reclassifications. Business model
approach.
Embedded
derivatives
Bifurcation of embedded derivatives
required in some cases
No separation. Same classification
approach (for hybrids with financial
hosts)
FVO
Available if specific criteria are met
Available for an accounting mismatch
Classification and Measurement
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Approach proposed for transition
– Generally fully retrospective, but some transition relief will be provided
– Early adopters will be subject to disclosures in addition to IAS 8 disclosures
Effective date
– Any final proposals will be available for voluntary application for 2009 year end
financial statements
– Mandatory date for adoption – not before 1 January 2012
• Comment deadline for exposure draft is 14 September 2009
2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
Classification and Measurement
FASB proposed approach
• All financial instruments within the scope of the project would
be measured on balance sheet at fair value with changes in
net income or other comprehensive income
• Fair value through net income
– Default category. Includes all equity investments, derivatives &
hybrid contracts that require separation.
• Fair value through OCI
– Qualify if business strategy is to hold debt instruments with
principle amounts for collection or payment(s) of contractual
cash flows rather than to sell or settle the financial instruments
with a third party
– Current period interest & impairment recognised in P&L.
– Other changes in fair value recognised in OCI.
– Recycling on derecognition.
Classification and Measurement
FASB FV-OCI presentation approach
• Balance sheet
– present as separate line items in the balance sheet
amortized cost and the necessary adjustment to
arrive at fair value, and cumulative credit losses.
• Income/performance statement
– One statement is mandatory with subtotals for net
income and total comprehensive income. (EPS
based on net income).
– Net income to include interest and dividends, credit
impairments, realized gains and losses.
– OCI to include entire change in fair value for
qualifying instruments.
Classification and Measurement
FASB model other features
• Amortized cost option
– Limited amortized cost option for certain financial liabilities
(own debt)
• Embedded derivatives
– Current bifurcation criteria for hybrid financial instruments would
determine whether those instruments would be classified in FV-NI
category or could be FV-OCI category.
– Clearly closely related could be at FV-OCI
– Not clearly closely related at FV-NI
– Non-financial hybrids would continue to follow current guidance
related to bifurcation
Questions or comments?
Expressions of individual views
by members of the IASB and
its staff are encouraged. The views
expressed in this presentation
are those of the presenter.
Official positions of the IASB on
accounting matters are determined
only after extensive due process
and deliberation.
2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org
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