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ACCTG414 (10)

12 - IFRS 9 vs IAS 39 Financial Instruments.pdf

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Jocelyn King

IASB Standards for Financial Instruments IFRS 9 was issued in 2009 to be effective in 2013. To encourage early adoption, the standard provided that “early adopters” would be exempt from the normal requirement to restate comparative data. Accordingly, a significant level of early adoption was expected. Therefore the text reflects IFRS 9 in C hapter 11 (Investments) as well as IFRS 9 in chapters that discuss financial instruments, such as Chapter 7 (Accounts Receivable.) In the fall of 2011, the IASB issued an exposure draft that would delay mandatory implementation until 2015 (rather than 2013). The exposure draft is now under consideration. The following major differences between IAS 39 and IFRS 9 can be highlighted: 1. Certain financial instrument categ ories have different names under the two standards: INVESTMENT CATEGORIES in IAS 39 in IFRS 9 1. Held-to-maturity Amortized cost 2. Available-for-sale Fair-value-through-other- comprehensive-income (FVTOCI) Fair-value-through-profit-and- Fair-value-through-profit-and-loss 3. loss (FVTPL) (FVTPL) (same name) 4. Loans and receivables Loans and receivables (same name) 2. Certain investment categories have different classification criteria under the two standards; IAS 39 relies on positive intent for category 1, while IFRS 9 relies on a business model classification. In categories 2 and 3, the catch-all has shifted from #2 to #3, with the other category fairly open to any investment so designated by management. Under IAS 39, bonds may be included in the AFS category (#2) but may not be FVTOCI (#2) under IFRS 9. Accounting Standards Update © 2011 McGraw-Hill Ryerson Ltd. All rights reserved To accompany Chapter 11 of Intermediate Accounting, Volume 1, 5 edition 1 INVESTMENT CATEGORIES in IAS 39 in IFRS 9 1. Held-to-maturity/ An investment that has a defined Amortized cost (AC) Amortized cost maturity date, fixed or investments must meet two tests: determinable payments, and for • The asset must be held and which there is positive intent to managed within a business hold to maturity model whose objective is to hold assets in order to collect contractual cash flows. • The financial asset must have contra ctual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount. Interest is defined as compensation for the time value of money and credit
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