Classification and Measurement: Limited Amendments to IFRS 9

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CLASSIFICATION AND MEASUREMENT: LIMITED AMENDMENTS TO IFRS 9 (PROPOSED AMENDMENTS TO IFRS 9 (2010)) Appendix B Application guidance This appendix is an integral part of the IFRS. Paragraph B3.1.6 is amended. New text is underlined. Recognition and derecognition (chapter 3) Regular way purchase or sale of financial assets ... B3.1.6 The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to (a) the recognition of an asset on the day it is received by the entity, and (b) the derecognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity. When settlement date accounting is applied, an entity accounts for any change in the fair value of the asset to be received during the period between the trade date and the settlement date in the same way as it accounts for the acquired asset. In other words, the change in value is not recognised for assets measured at amortised cost; it is recognised in profit or loss for assets classified as financial assets measured at fair value through profit or loss; and it is recognised in other comprehensive income for assets classified as financial assets measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A and investments in equity instruments accounted for in accordance with paragraph 5.7.5. Paragraphs B4.1.1 and B4.1.3–B4.1.4 are amended. Paragraphs B4.1.2A–B4.1.2B are added. Paragraph B4.1.2 is included for reference only and is not proposed for change. New text is underlined and deleted text is struck through. Classification (chapter 4) Classification of financial assets (section 4.1) The entity’s business model for managing financial assets B4.1.1 Paragraph 4.1.1(a) requires an entity (unless paragraph 4.1.5 applies) to classify financial assets as subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets. An entity assesses whether its financial assets meet this the condition in paragraph 4.1.2(a) or in paragraph 4.1.2A(a) on the basis of the objective of the business model as determined by the entity’s key management personnel (as defined in IAS 24). B4.1.2 The entity’s business model does not depend on management’s intentions for an individual instrument. Accordingly, this condition is not an instrument-by-instrument approach to classification and should be determined 17 � IFRS Foundation
EXPOSURE DRAFT–NOVEMBER 2012 on a higher level of aggregation. However, a single entity may have more than one business model for managing its financial instruments. Therefore, classification need not be determined at the reporting entity level. For example, an entity may hold a portfolio of investments that it manages in order to collect contractual cash flows and another portfolio of investments that it manages in order to trade to realise fair value changes. B4.1.2A The entity’s business model for managing the financial assets is a matter of fact that can be observed by the way the business is managed and its performance is evaluated by the entity’s key management personnel. The entity’s business model for managing the financial assets determines the entity’s likely future cash flows from the financial assets. B4.1.2B The determination of the business model for managing the financial assets is not driven by a single factor. Rather, all objective evidence that is relevant to assessing the entity’s business model must be considered. Such evidence includes, but is not limited to: (a) how the performance of the business is reported to the entity’s key management personnel; (b) how managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed); and (c) the frequency, timing and volume of sales in prior periods, why such sales have occurred and expectations about the sales activity in the future. B4.1.3 In determining whether cash flows are expected to be collected from contractual cash flows, the level of sales activity, as well as the reason for any sales, must be considered. Although the objective of an entity’s business model may be to hold financial assets in order to collect contractual cash flows, the entity need not hold all of those instruments until maturity. Thus an entity’s business model can be to hold financial assets to collect contractual cash flows even when sales of financial assets occur. For example, the entity may sell a financial asset if: (a) the financial asset the credit quality of the financial asset has deteriorated such that it no longer meets the entity’s documented investment policy. (eg the credit rating of the asset declines below that required by the entity’s investment policy); (b) an insurer adjusts its investment portfolio to reflect a change in expected duration (ie the expected timing of payouts); or (c) an entity needs to fund capital expenditures. Such sales are not inconsistent with the objective to hold financial assets to collect contractual cash flows because the credit quality of financial assets is relevant to the entity’s ability to collect contractual cash flows. No longer meeting the entity’s documented investment policy is not the only evidence that the credit quality of the financial asset has deteriorated such that a sale is necessary. However, in the absence of such a policy, it may be difficult for an entity to demonstrate that the sale is necessary as a result of the deterioration in the asset’s credit quality. � IFRS Foundation 18
Page 1 and 2: November 2012 Exposure Draft ED/201
Page 3 and 4: Exposure Draft ED/2012/4 Classifica
Page 5 and 6: Introduction IN1 The International
Page 7 and 8: Question 3 Do you believe that this
Page 9 and 10: attributable to changes in the cred
Page 11 and 12: EXPOSURE DRAFT-NOVEMBER 2012 4.1.4
Page 13 and 14: Paragraphs 5.7.1 and 5.7.4 are amen
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Page 21 and 22: ...continued Example Analysis Examp
Page 23 and 24: Example Analysis Example 1 EXPOSURE
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Page 27 and 28: contractual cash flows could not be
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Page 31 and 32: not meet the conditions in paragrap
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Page 35 and 36: Paragraph B7.2.1 is amended. New te
Page 37 and 38: income or equity investments design
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Page 47 and 48: Scope of this exposure draft BC6 Th
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EXPOSURE DRAFT-NOVEMBER 2012 BC93 T
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credit risk. However, given the con
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BC111 Lastly, the IASB noted that I
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Bifurcation of embedded features in
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Comparability of financial informat
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The business model EXPOSURE DRAFT-N
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EXPOSURE DRAFT-NOVEMBER 2012 normal
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EXPOSURE DRAFT-NOVEMBER 2012 portio
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EXPOSURE DRAFT-NOVEMBER 2012 disclo
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EXPOSURE DRAFT-NOVEMBER 2012 ‘Man
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EXPOSURE DRAFT-NOVEMBER 2012 AV11 M
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...continued EXPOSURE DRAFT-NOVEMBE
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...continued Reconciliation of stat
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EXPOSURE DRAFT-NOVEMBER 2012 measur
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Classification and Measurement: Limited Amendments to IFRS 9

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