IFRS 9 - Financial Instruments

Introduction:

IFRS 9 Financial Instruments is effective from 1 January 2018 and replaces IAS 39 Financial Instruments: Recognition and Measurement. It introduces a logical, more principles-based approach to classification and measurement of financial assets based on the entity’s business model and an instrument’s cash flow characteristics. The new forward-looking impairment model requires earlier recognition, and ongoing assessment of credit losses. IFRS 9’s hedge accounting requirements are more principles-based and more closely aligned with the entity’s risk management practices.

This course provides an in-depth analysis of IFRS 9 Financial Instruments. It provides numerous examples and illustrations to explain the business model and cash flow characteristics test for classification of financial assets, amortized cost and fair value measurement of financial assets and financial liabilities, de-recognition of financial assets (retained servicing, continuing involvement, etc.), measurement of expected credit losses and the accounting and impact of different types of hedges on financial statements. Also, it covers the disclosures in IFRS 7 and the principles of fair value measurement in IFRS 13.

Targeted Groups:

• Financial and Management Accountants in Corporates and Financial Institutions
• Staff in treasury, Operations, Risk Management, IT or Compliance Departments
• Internal Auditors of entities reporting under IFRSs
• External Auditors with clients facing the complexities and challenges in adopting and implementing IFRS 9
• Staff and Management of Central Banks, Deposit Insurance Entities, and other agencies with regulatory responsibility in the financial services sector
• Financial Analysts seeking to improve their understanding of the accounting and disclosures related to financial instruments and the changes introduced by IFRS 9
• First-time adopters of IFRSs, seeking to analyze the implications of applying IFRS 9 initially.

Course Objectives:

At the end of this course the participants will be able to:

• Classify and measure financial assets under the three categories in IFRS 9
• Analyze the impact of IFRS 9 on the classification of financial assets, including embedded derivatives
• Classify and measure financial liabilities under the two categories in IFRS 9
• Evaluate the principles of fair value measurement in IFRS 13
• Apply the principles about de-recognition of financial assets
• Calculate the impairment loss on loans and other financial assets under the expected credit loss model in IFRS 9
• Analyze the estimates and judgments in the expected credit loss impairment model
• Apply the hedge accounting model in IFRS 9 and learn how it is aligned more closely to common risk management practices compared to IAS 39

Targeted Competencies:

• Understanding financial statements
• Financial reporting
• Applying IFRS
• Accounting for current and non-current assets and liabilities
• Classifying investments
• Describing updates and amendments
• Assessing the impact on financial accounts

Course Content:

Unit 1: Introduction To IFRS 9:

• IASB standards applicable to financial instruments: IAS 32, IAS 39, IFRS 7, IFRS 9 and IFRS 13
• Introduction to IFRS 9
• Definition of financial assets, financial liabilities and equity instruments
• IAS 32 Financial Instruments: Presentation – financial liability versus equity instruments, compound financial instruments and offsetting

Unit 2: Classification of Financial Assets and Financial Liabilities:

• Re-cap of IAS 39 classification
• Solely Payments of Principal and Interest (SPPI) criteria
• Business model criteria
• Application of IFRS 9 classification model
• Amortized cost
• Fair value through profit or loss
• Fair value through other comprehensive income
• Fair value option

Unit 3: Measurement of Financial Assets and Financial Liabilities:

• Initial recognition including treatment of transaction costs
• Subsequent measurement (IFRS 9 and IFRS 13)
• Debt instruments
• Equity instruments
• Fair value movements due to changes in own credit risk and reporting it for financial liabilities designated at fair value through profit or loss
• Impact of reclassification of financial assets
• Overview of accounting for derivatives and embedded derivatives in IFRS 9
• CVA and DVA for credit risk on derivatives.

Unit 4: Amortized Cost Financial Assets:

• Recognition and measurement under IFRS 9
• Loan commitments
• Fee income and loan origination costs
• Financial guarantees
• Repossessed assets.

Unit 5: De-Recognition Principles:

• De-recognition of financial assets
• Determining whether a “transfer” has occurred
• Transfer/retention of substantially all risks and rewards
• Determining whether an entity retains “control” and measurement of continuing involvement
• De-recognition of financial liabilities.

Unit 6: Impairment of Financial Assets:

• Introduction to IFRS 9 expected loss model – background, scope, and impact of the model
• Application of IFRS 9 expected credit loss model
• 12-month and lifetime expected credit losses
• Determination of significant increases in credit risk
• Measurement of expected credit losses
• Modified financial assets
• Simplification and practical expedients
• Purchase/origination of credit-impaired financial assets
• Individual and collective assessment of impairment
• Key estimates and judgments.

Unit 7: Hedge Accounting:

• Overview of hedging, accounting for different types of hedges and comprehensive examples to hedge interest rate risk and foreign exchange risk
• Issues with IAS 39 hedge accounting
• IFRS 9 hedge accounting model
• Hedging instruments
• Hedged items
• Qualifying criteria
• Hedge documentation
• Hedge effectiveness requirements
• Rebalancing
• Discontinuation
• Discussion paper on macro hedging (dynamic risk management).