Financial Instruments - IASB S Project To Replace IAS 39: International Financial Reporting Standards

International Financial Reporting Standards
The views expressed in this presentation are those of the presenter,

not necessarily those of the IASB or IFRS Foundation.
IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
Financial instruments
IASBs project to
replace IAS 39
Joint World Bank and IFRS Foundation train the
trainers workshop hosted by the ECCB,
30 April to 4 May 2012
Overview
Direct response to the Financial Crisis
Approached in phases
I. Classification and Measurement
I. Assets Completed 2009
II. Liabilities Completed 2010
II.Impairment Re-expose Q4 12
III.Hedge Accounting
I. General Hedge Model Review draft Q2 12
II. Macro Hedge model Discussion paper Q4 12
Reopen Phase I Expose changes H2 12

2
3
Reopening Phase I
Limited modifications
IFRS 9 is sound and operational
Address specific application issues
Consider interaction of IFRS 9 and insurance project
Consider how to reduce differences with FASBs
classification and measurement model
Effective date and transition
IFRS 9 effective 1 January 2015
early application permitted (phases)
Required application date will be calibrated for all
completed phases
Restatement of comparative financial statements not
required
modified disclosures on transition

4
not necessarily those of the IASB or IFRS Foundation
Phase I
Classification and Measurement
6

Financial assets
Fair Value
(No impairment)
Amortised cost
(one impairment
method)
Contractual cash flow
characteristics
Business model test
FVO for
accounting
mismatch
(option)
All other instruments:
Equities
Derivatives
Some hybrid contracts

Equities:
OCI presentation
available
(alternative)
Reclassification required when business model changes
7

Financial assets: possible changes
Fair Value
(No impairment)
Amortised cost
(one impairment
method)
characteristics
Business model test
FVO for
accounting
mismatch
(option)
All other instruments:
Equities
Derivatives
Some hybrid contracts

Equities:
OCI presentation
available
(alternative)
Reclassification required if business model changes
FVOCI
(one impairment
method)
Scope of possible changes
Clarify contractual cash flow characteristics test
To address interaction with the insurance project and align
with the FASB model, consider:
introducing a third business model
whether some debt instruments should be remeasured
through OCI
Reconsider need for bifurcation of financial assets

8
Cash flow characteristics assessment
Tentative decision
Minor change to IFRS 9
Clarifies principle in IFRS 9
confirmed if cash flows not solely principal and interest
(P&I) measured at FVPL
If solely profit or loss, measurement depends on business
model
Introduces notion of modified principal and interest
determine by comparing with a benchmark instrument
9
2012 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org
10
Amortised cost
Contractual cash flow characteristics

Contractual terms that give rise to
solely payments of
characteristics
Interest =
Consideration for
time value of money
credit risk
Principal Interest
Tentative decision:

Modified P&I satisfies test IF
Compared with a benchmark
instrument
Difference not more than
insignificant
Amortised cost
Business model
Financial assets qualify for amortised cost if:
objective of business model is to collect contractual
cash flows
Clarify the term hold to collect by providing additional
application guidance on:
type of business activities
frequency and nature of acceptable sales

11
Bifurcation
3 primary options considered:
current asymmetrical model
bifurcation of both assets and liabilities
no Bifurcation
Decision to retain the current model

12
Business model/strategy
IFRS 9 business models
held to collect contractual cash flows (amortised cost)
other (FVTPL)
FASB business strategy
lending business (amortised cost)
investing business (FVOCI with recycling and
impairment)
trading business (FVTPL)
13
14 14
Financial liabilities
Accounting as for IAS 39 except for financial liabilities under
Fair Value Option
these financial liabilities recorded on statement of
financial position at full fair value
changes in fair value attributable to own credit recorded
in OCI (not recycled)
all other changes recorded in Profit or loss
Mandatory for all liabilities under the FVO unless this would
create or enlarge an accounting mismatch

Convergence
Both boards have mixed measurement models
Similarities in classification criteria
characteristics of instruments
business model/strategy
Seek to reduce key differences
FASB have FVOCI for some debt instruments
FASB retained bifurcation for financial assets
FASB prohibit reclassification
Joint redeliberation of key differences
Separate exposure drafts
15
not necessarily those of the IASB or IFRS Foundation
Phase II
Financial Instruments: Impairment
Three Bucket Approach
17
Impairment: General overview
Expected loss (EL) model
Responsive to changes in information that impact credit
expectations
Deterioration in credit quality leads to recognition of lifetime
losses
Robust disclosures to support principle and support
comparability
Guiding principle: Reflect general pattern of deterioration and
improvement of credit quality of financial assets
18
Three-bucket approach
Bucket 1: 12 months
expected loss allowance
Bucket 2: Lifetime
Bucket 3: Lifetime
All financial assets are initially
categorised in this bucket*
Evaluation performed on
groups of financial assets
Evaluation performed on
individual financial assets
Move out of Bucket 1 when
more than an insignificant deterioration in credit quality AND
reasonably possible that all or some contractual cash flows
may not be collected.
Completely symmetrical model
Purchased credit-impaired assets
Scope
assets purchased with an explicit expectation of credit
losses
same population as IAS 39 today (IASB)
Always outside Bucket 1
Use credit-adjusted effective interest rate
no day 1 allowance balance
no day 1 impairment loss recognised
Allowance balance represents changes in lifetime loss
expectations

19
Trade receivables
Without a significant financing component (short term):
measure receivable at invoice amount
if expected loss model applies, always recognise lifetime
expected losses (ie categorise outside Bucket 1)
provisioning matrix
With a significant financing component (long term):
policy election either:
apply general three-bucket model or
always recognise lifetime expected losses

20
Open topics and timeline
Practical expedients how to determine expected losses
Lease receivables
Discount rate
Loan commitments, financial guarantee contracts, revolvers
Disclosures
Re-exposure draft in H2 2012

21
Phase III
Hedge Accounting (General)
2012 | IFRS Conference Kuala Lumpur
23
Objective
Risk management
objective:
Seeks to link
risk management and
financial reporting
(top down)

Accounting
objective:
Seeks to manage
timing of recognition
of gains or losses
(bottom up)

24
Hedged items
Qualifying
hedged item
Entire item Component
Risk component
(separately identifiable and reliably
measurable)
Nominal component or
selected contractual CFs
25
Hedged items: risk components
Benchmark
(eg interest
rate or
commodity
price)
Benchmark
(eg interest
rate or
commodity
price)

Variable
element
Fixed element
Benchmark
(eg interest
rate or
commodity
price)
Benchmark
(eg interest
rate or
commodity
price)

Variable
element
Fixed element
IAS 39 New model
26
Hedging instruments
Qualifying hedging
instruments
Entire item Partial designation
FX risk component
Nominal component
(proportion)
Intrinsic value
Spot element
27
Costs of hedging
Time value
of options
Transaction
related
hedged item
Time period
related hedged
item
Costs of hedging
Forward element
of forward
contract
Forward points (the funding swap
issue)
Feedback on ED: accounting requirement for time value of
options and forward points should be consistently applied
28
Time value of
options
Forward points
(IAS 39)
Forward points
(decision in
redeliberations)
Transaction related
hedged item
Defer Can in substance
defer**
N/A (current
requirements already
provide solution)
Time period related
hedged item
Amortise Profit or loss Amortise
Profit or loss
volatility
** Can be deferred by the forward rate method
(other than for FX financial assets/liabilities)

29
Hedge effectiveness
Hedge
effectiveness
Hedge effectiveness test:
1. Economic relationship
2. Effect of credit risk
3. Hedge ratio
Measuring and recognising
hedge ineffectiveness
Rebalancing Discontinuation
30
Total entity risk exposure
(no specific disclosure requirements)
Disclosures: scope
Hedged exposure
(Exposure to
risks being
hedged)
IFRS 7
Disclosure
requirements
Significance of
financial instruments
for financial position
and performance
Nature and extent of
risks arising from
financial instruments
Entitys exposure
attributable to the
hedged risk
31
Disclosures
Hedge accounting
disclosures
Risk
management
strategy
Amount, timing
and uncertainty
of future
cash flows
Effects of hedge
accounting on
the primary
financial
statements
Specific
disclosures for
dynamic
strategies and
credit risk
hedging
32
Alternatives to hedge accounting
Alternatives
Own use scope exception
in IAS 39
Credit derivatives

Elective FVTPL
At initial recognition or subsequently
At discontinuation: amortisation
Eligible for FVO in IFRS 9
33
Prospective transition with limited exceptions
retrospective application
required for time value of options
permitted for accounting for forward elements
practical expedients
allowed to consider the transition as a continuous process
for rebalancing, starting point is the hedge ratio used under
IAS 39 (gains or losses recognised in profit or loss)
hedging relationships that qualified under IAS 39 and
qualify under the new model will be treated as continuing

Transition
Phase III
Hedge Accounting (Macro)
Status of the macro hedge accounting
project
35
Fact finding
Common themes
Implications for
accounting model
Design of
accounting model
Common themes
Implications for
accounting model
Design of
accounting model
Interest rate risk Other risks
Project status
Sept 2011
Nov 2011
Feb 2012
Mechanics of the valuation approach
36
Discussion of interest rate risk using
11 Steps
37
Full fair value measurement Step 1
Step 2 - Limit valuation to interest rate risk
Step 3 - Net margin as hedged risk
Step 4 - Valuation on the basis of a (closed) portfolio
Step 5 - Open portfolios as unit of account
Step 6 - Timing difference of cash flows (bucketing)
Interim Step: Summary of discussion
Step 7 - Multi-dimensional risk management objectives
Step 8 - Floating leg of derivatives
Step 9 - Counterparty risk
Step 10 - Internal derivatives
Step 11 - Risk limits
Risk Management
Accounting alternatives and financial
reporting objectives
38
Valuation
Hedge
Accounting
Accounting
Layer*
Derivatives
at cost
Simple solutions
support
transparency when
not over-simplifying
Volatility provides
information - none
or too much lacks
transparency
*Designation of a bottom layer of a gross
position (for accounting purposes) to address
the dynamics easier than with current hedge
accounting approach. The layer is derived from
the actual net risk position.
Macro Hedge Accountingtimetable
39
After initial discussions in September/November 2010, the
Boards deliberation began in September 2011
The Board first develops a model for interest rate risk (H1
2012) and plans to address other risks thereafter
Targeting issue of a due process document in H2 2012
40
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.
41

The requirements are set out in International Financial
Reporting Standards (IFRSs), as issued by the IASB at 1
January 2012 with an effective date after 1 January 2012
but not the IFRSs they will replace.
The IFRS Foundation, the authors, the presenters and the
publishers do not accept responsibility for loss caused to
any person who acts or refrains from acting in reliance on
the material in this PowerPoint presentation, whether such
loss is caused by negligence or otherwise.
41

Financial Instruments - IASB S Project To Replace IAS 39: International Financial Reporting Standards

Enviado por

Dados do documento

Descrição original:

Título original

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

Financial Instruments - IASB S Project To Replace IAS 39: International Financial Reporting Standards

Enviado por

Direitos autorais:

Formatos disponíveis

International Financial Reporting Standards

The views expressed in this presentation are those of the presenter,

Você também pode gostar