IASB plans amendments to IFRS 9 to address cashflow risks

The International Accounting Standards Board (IASB) is planning minor amendments to the financial instruments standard, IFRS 9, before it has even come into force to address concerns over pre-payable financial assets

The amendment, out for a brief four-week consultation in comparison with usual 120-day comment period, is designed to enable companies to measure at amortised cost certain pre-payable financial assets with so-called negative compensation to address cashflow and loan value issues which would have been negatively hit by IFRS 9 Financial Instruments.

The short consultation period is allowed if an amendment is deemed to be ‘urgent’.

The amendments are a direct response to comments received by the IFRS Interpretations Committee and are intended to improve the usefulness of information about these financial assets under IFRS 9.

In light of the Interpretations Committee’s recommendation and similar concerns raised by banks and their representative bodies, the IASB has decided to propose a narrow exception to IFRS 9 for particular financial assets that would otherwise have contractual cashflows that are solely payments of principal and interest but do not meet that condition only as a result of a prepayment feature.

Applying the proposals, some such financial assets would be eligible to be measured at amortised cost or at fair value through other comprehensive income, subject to the assessment of the business model in which they are held, if particular conditions are met.

The measure will be applied to the standard as soon as possible as it will have a significant impact on bank preparers which are well into the implantation period for IFRS 9.

The exception would be applied retrospectively, subject to a specific transition provision if doing so is impracticable, depending on stakeholder feedback.

Hans Hoogervorst, chairman of the IASB, said: These proposed minor amendments to the standard respond to comments received about the accounting for prepayment options under IFRS 9 and are consistent with the board’s enhanced focus on supporting implementation of major new standards.’

The deadline for comment is 24 May 2017.

Email comments can be sent to: commentletters@ifrs.org

The IFRS 9 Exposure Draft, Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9), can be accessed here

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