dealing with the specific topics were and will be
published on IFRSbox. You can read their list at
IFRS 9 Financial Instruments
IFRS 9 Financial Instruments is one of the most
challenging standards because it’s sooo complex
and sometimes complicated.
It belongs to the “Big 3” – the three difficult
standards that need to be implemented in the
near future:
IFRS 9 Financial Instruments: adoption date = 1
January 2018
IFRS 15 Revenues from Contracts with
Customers = 1 January 2018
IFRS 16 Leases = 1 January 2019 (I recommend
to apply earlier together with IFRS 9 and IFRS
15).
The trouble with IFRS 9 is that many
accountants believe it does not affect them.
“We don’t have any financial instruments, we
are a manufacturing company, so why should we
care?”
Well, not so true.
At the moment you start selling on credit and
issue invoices, you acquire the financial
instruments – trade receivables. And yes, IFRS 9
applies here.
Therefore, no procrastinating, time to get ready!
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In this article I summarize the main
requirements of IFRS 9 as valid in 2017.
I don’t go into many details here – the purpose
of this article is to give you the overview.
However, as I want to help you understand and
smoothly implement IFRS 9, a few articles
the end.
If you enjoy the video learning more than
reading, then please scroll down and watch the
video with the summary of IFRS 9.
Why IFRS 9?
IFRS 9 establishes principles for the financial
reporting of financial assets and financial
liabilities.
Please note that:
IFRS 9 does NOT define financial instruments.
You can find the definitions of financial
instruments in IAS 32 Financial Instruments:
Presentation.
IFRS 9 does NOT deal with your own (issued)
equity instruments like your own shares, issued
warrants, written options for equity, etc.
IFRS 9 DOES deal with the equity instruments
of someone else, because they are financial
assets from your point of view.
IFRS 9 does NOT deal with your investments in
subsidiaries, associates and joint ventures (look
to IFRS 10, IAS 28 and related).
 
When to recognize a financial instrument?
You should recognize a financial asset or a
financial liability in the statement of financial
position when the entity becomes a party to the
contractual provisions of the instrument (please
refer to IFRS 9 par. 3.1.1).
Unlike in other IFRS standards that put
emphasis on the future economic benefits, IFRS
9 is more about the contract.
When to derecognize a financial instrument?
In other words, when to remove a financial
instrument from your financial statements?
IFRS 9 treats the derecognition of financial Transfers of financial assets are then discussed
assets differently from the derecognition of in much greater detail in IFRS 9 and also,
financial liabilities, so let’s break it down. application guidance summarizes the
derecognition steps in a simple decision
Derecognition of financial assets
tree. You can familiarize yourself with the
While it’s very easy to recognize a financial decision tree in the video below this summary.
asset, it’s very difficult and complicated to
Derecognition of a financial liability
derecognize it in some cases.
An entity shall derecognize a financial
IFRS 9 is very “sticky” and the reason is to
liability when it is extinguished.
prevent companies from hiding toxic assets out
of their balance sheets. It happens when the obligation specified in the
contract is discharged, cancelled or expires.
Before you decide whether to derecognize or
not, you need to determine WHAT you’re Classification of financial instruments
dealing with (IFRS 9 par. 3.2.2):
 
A financial asset (or a group of similar financial
How to classify the financial assets?
assets) in its entirety, or
IFRS 9 classifies financial assets based on two
A part of a financial asset (or a part of a group of
characteristics:
similar financial assets) meeting specified
conditions. Business model test
What is the objective of holding financial
After you determine WHAT you derecognize,
assets? Collecting the contractual cash flows?
then you need derecognize the asset when (IFRS
Selling?
9 par. 3.2.3):
Contractual cash flows’ characteristics test
The contractual rights to the cash flows from the
Are the cash flows from the financial assets on
financial asset expire – that’s an easy and clear
the specified dates solely payments of principal
option; or
and interest on the principal outstanding? Or, is
An entity transfers the financial asset and the there something else?
transfer qualifies for the derecognition – that’s
more complicated.

Transfers of financial assets are discussed in

more details and to sum it up, you need to go
through the following steps:
Decide whether the asset (or its part) was
transferred or not,
Determine whether also risks and rewards from
the financial asset were transferred.
If you have neither retained nor transferred
substantially all of the risks and rewards of the
asset, then you need to assess whether you have
retained control of the asset or not.