IASB's limited amendments to IFRS 9 welcomed
Proposed changes minimal as IFRS 9 is "fundamentally sound"
By Gaurav Sharma | CFO UK | Published 18:12, 30 November 12
IASB proposals for limited amendments to international accounting rules governing classification and measurement requirements of financial instruments have been broadly welcomed by the industry.
Its exposure draft, left open for comment until 28 March 2013, introduced a new measurement category for financial assets that are managed both in order to collect contractual cash flows and for sale such as some bond investment portfolios accompanied with the introduction of a fair value through other comprehensive income (FVOCI) measurement category for the debt instruments that would be based on an entity's commercial model.
Some monetary assets that an entity previously hoped to measure at amortised cost under the existing IFRS 9 model may have to be classified in this new category under the amended proposals. This could increase volatility in reported equity and regulatory capital for financial institutions.
The IASB said on Thursday that the changes had been kept to a minimum because IFRS 9 was "fundamentally sound"; more so as some entities have already prepared to adopt or in some cases already adopted the standard’s previously published version.
The new proposals emerged earlier this week as part of a wider initiative with US peer FASB. Commenting on the move, Hans Hoogervorst, chairman of the IASB, said, "We were clear when IFRS 9 was introduced in 2009 that it would be necessary to consider revisiting the interaction between IFRS 9 and the insurance contracts project once the insurance contract model was developed sufficiently."
"In addition, this limited-scope review has given us an opportunity to propose aligning IFRS and US GAAP more closely, in this important area of financial reporting," he added.
The big four accounting firms have broadly welcomed the IASB move aimed at reducing differences with the FASB's model and a step towards completing its plan to reform financial instruments accounting under IFRS.
Andrew Vials, global IFRS Financial Instruments leader at KPMG, felt that banks, insurance companies and other financial institutions are most likely to be affected by the proposed changes.
"Some entities will expect an overall reduction in profit and loss (P&L) volatility, although for others volatility in equity and regulatory capital may increase. It was good to see the IASB and the FASB working together on developing common principles in this area. Let’s hope that they can follow that through in terms of finalising the detail that will govern how the new requirements are actually applied in practice," he added.
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