IASB amends classification and measurement requirements in IFRS 9 Financial Instruments

On 30 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). The Amendments respond to matters identified during the post-implementation review of the classification and measurement requirements of IFRS 9 Financial Instruments. We discuss these briefly below.

Classification of financial assets

The three main changes to the requirements for classifying financial assets under IFRS 9 are:

1. Financial assets with ESG and other similar features

For a financial asset to be classified at amortised cost, its contractual cash flows must be consistent with a basic lending arrangement. The Amendments provide guidance on how to assess whether contractual cash flows from loans with ESG features are consistent with a basic lending arrangement.

2. Financial assets with non-recourse features

Some financial assets may have contractual cash flows that are described as principal and interest but do not represent the payment of principal and interest on the principal amount outstanding. This could arise if a financial asset has ‘non-recourse’ features. The Amendments clarify that a financial asset has non-recourse features if an entity’s ultimate right to receive cash flows is contractually limited to the cash flows generated by specified assets. In other words, the entity is primarily exposed to the specified assets’ performance risk rather than the debtor’s credit risk.

3. Contractually linked instruments

The Amendments clarify the characteristics of contractually linked instruments. They also clarify, for example, that some transactions that may contain multiple debt instruments and appear to have the characteristics of contractually linked instruments are, in fact, lending arrangements structured to provide enhanced credit protection to the creditor.

Derecognition of liabilities settled through electronic payment systems

When settling a financial liability in cash using an electronic payment system, the Amendments permit an entity to deem the financial liability to be discharged before the settlement date if the entity has initiated a payment instruction that resulted in:

• The entity having no practical ability to withdraw, stop or cancel the payment instruction
• The entity having no practical ability to access the cash to be used for settlement as a result of the payment instruction, and
• The settlement risk associated with the electronic payment system being insignificant.

Disclosures

The Amendments also amend IFRS 7 Financial Instruments: Disclosures to introduce disclosures regarding:

• Investments in equity instruments designated at fair value through other comprehensive income
• The contractual terms that could change the amount of contractual cash flows based on the occurrence or non-occurrence of a contingent event that does not relate directly to changes in basic lending risks and costs.

Effective date

The Amendments are effective for annual reporting periods beginning on or after 1 January 2026, with earlier application permitted. An entity is also allowed to early apply only the amendments related to the classification of financial assets.

Need help?

Please contact our IFRS & Corporate Reporting team if you need help applying these Amendments.