Amendments to the Classification and Measurement of Financial Instruments

The International Accounting Standards Board (IASB) has recently issued the following exposure draft (ED):  Amendments to the Classification and Measurement of Financial Instruments. This ED proposes narrow-scope amendments to the classification and measurement requirements in IFRS 9 Financial Instruments, and to the disclosure requirements in IFRS 7 Financial Instruments: Disclosures.

Key areas of interest for New Zealand

While the proposed amendments are narrow in scope, they cover matters that are topical in New Zealand. For example, the ED proposes to clarify the accounting for financial instruments with features linked to economic, social and corporate governance (ESG) factors – such as loans where the interest rate depends on the borrower achieving environmental targets. We understand that such instruments are becoming more common in New Zealand. The ED also includes proposals on the accounting for liabilities settled via electronic cash transfer – a common means of payment in New Zealand.   

The proposals

The proposed amendments respond to feedback received from the post-implementation review (PIR) of the classification and measurement requirements in IFRS 9, which concluded in December 2022.

The ED proposes amendments to IFRS 9 concerning:

1. derecognition of a financial liability settled through electronic transfer —to clarify that an entity is required to apply settlement date accounting when derecognising a financial asset or a financial liability; and to permit an entity to deem a financial liability that is settled using an electronic payment system to be discharged before the settlement date if specified criteria are met.
2. classification of financial assets—to clarify the application guidance for assessing the contractual cash flow characteristics of financial assets, including:
   1. financial assets with contractual terms that could change the timing or amount of contractual cash flows, for example, those with environmental, social and corporate governance (ESG) and similar features;
   2. financial assets with non-recourse features; and
   3. financial assets that are contractually linked instruments.

This ED also proposes to make amendments to the disclosure requirements in IFRS 7 for: 

1. investments in equity instruments designated at fair value through other comprehensive income; and
2. financial instruments with contractual terms that could change the timing or amount of contractual cash flows on the occurrence (or non-occurrence) of a contingent event.

 

Accessing the Consultation Document