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How will the amendments to classification and measurement of financial instruments impact your business?  

In May 2024, the International Accounting Standards Board (“IASB”) issued ‘Amendments to the Classification and Measurement of Financial Instruments (Amendments to IFRS 9 and IFRS 7)'. The amendments address two of the issues identified during the post-implementation review of IFRS 9, being the derecognition of a financial liability settled through electronic transfer and the classification of financial assets, it also introduces new and amended disclosure requirements. 

The amendments are effective for reporting periods beginning on, or after 1 January 2026, with early application permitted.   

What are the key changes to IFRS 9 and IFRS 7?

Three key elements may impact your business:     

1. Derecognition of a financial liability settled through electronic transfer
   The amendments introduce an accounting policy choice to derecognise a financial liability settled using an electronic payment system before the settlement date providing certain criteria are met. If this accounting policy choice is made, it must be applied to all settlements made through the same electronic system. 
   Following this amendment, liabilities settled via electronic payment systems should only be derecognised on the settlement date, rather than when the electronic payment is initiated, unless the criteria are met, and an accounting policy choice is made to de-recognise liability on initiation for each electronic payment system. 
2. Classification of financial assets
   The amendments clarify how contractual cash flows on loans should be assessed to determine whether the contractual cash flows are consistent with a basic lending arrangement. With the increase in the use of ESG-linked financial instruments, additional examples of loans with ESG-linked features have been included in the application guidance. 
   The amendments also include additional application guidance regarding the assessment of financial assets with non-recourse features and contractually linked instruments.
3. Disclosure requirements
   The amendments introduce additional disclosure requirements to enhance transparency for investors regarding investments in equity instruments designated at fair value through other comprehensive income. Any changes in fair value recognised in other comprehensive income needs to be disaggregated between fair value movements on investments derecognised in the period and those on investments held at the end of the reporting period.   
   Additional disclosures have also been introduced about contingent features that could change the timing or amount of the contractual cash flows of financial instruments, for example, features linked to ESG targets now require disclosure. 

What next? 

Entities need to consider whether they wish to apply the accounting policy choice regarding derecognition of a liability settled through electronic transfer. Management  needs to assess each electronic payment system used to determine if it meets the criteria to derecognise a liability when a payment instruction has been initiated, which is earlier than the settlement date. Once this accounting policy choice is made, all liabilities settled through the same electronic payment system will be de-recognised when the payment instruction is initiated. Entities which make this accounting policy election will need to consider the implications that this will have on their financial position at their reporting date.

For all other liabilities settled via electronic payment systems, derecognition should only occur once the liability has been settled. 

Entities will need to ensure that their accounting systems are configured to ensure that liabilities are derecognised correctly in line with IFRS 9.   

In terms of financial instrument classification, entities may need to review the features of their financial instrument to determine whether classification will be impacted by the amendments.

Please get in touch with Lou Ward or your usual 91探花contact to discuss how we can help your business prepare for the changes.