Classification and Measurement: Limited Amendments to IFRS 9

CLASSIFICATION AND MEASUREMENT: LIMITED AMENDMENTS TO IFRS 9 (PROPOSED AMENDMENTS TO IFRS 9 (2010))
condition in paragraphs 4.1.2(b) and 4.1.2A(b) and cannot be subsequently
measured at amortised cost or at fair value through other comprehensive
income.
Paragraphs B4.1.9A–B4.1.9E are added.
B4.1.9A In other cases, the economic relationship between principal and the
consideration for the time value of money and the credit risk in a financial asset
may be modified by an interest rate reset feature (ie an interest rate that is reset
where the frequency of the reset does not match the tenor of the interest rate).
In such cases and in the case of leverage (collectively referred to as ‘a modified
economic relationship’), an entity shall assess the modification to determine
whether the contractual cash flows represent solely payments of principal and
interest on the principal amount outstanding.
B4.1.9B Unless paragraph B4.1.9E applies, when assessing a modified economic
relationship, an entity shall consider cash flows on a comparable financial asset
that does not contain the modification (benchmark cash flows). The appropriate
comparable financial asset is a contract of the same credit quality and with the
same contractual terms (including, when relevant, the same reset periods),
except for the contractual term under evaluation. For example, if the financial
asset under assessment contains a variable interest rate that is reset monthly to
a three-month interest rate, the appropriate benchmark would be a financial
asset with the identical contractual terms and the identical credit quality except
that the variable interest rate is reset monthly to a monthly interest rate. An
entity may consider either an actual or a hypothetical financial asset as the basis
for the assessment.
B4.1.9C If the modification could result in cash flows that are more than insignificantly
different from the benchmark cash flows, the financial asset does not meet the
condition in paragraphs 4.1.2(b) and 4.1.2A(b). The reason for the rate being set
in this way is not relevant to the analysis. For example, the conclusion would be
unchanged whether the rate is required to be set in this way to provide
consumer protection or is included in a bespoke structured product to achieve a
particular economic outcome.
B4.1.9D When assessing a modified economic relationship in a financial asset, an entity
shall consider variables that could affect future cash flows. For example, if an
entity is assessing a constant maturity bond with a five-year term and a variable
rate that is reset semi-annually to a five-year rate, and the interest rate curve at
the time of the assessment is such that the difference between a five-year rate
and a semi-annual rate is not more than insignificant, that in itself does not
enable the entity to conclude that the contractual cash flows are solely payments
of principal and interest. The entity shall also consider whether the relationship
between the five-year rate and the semi-annual rate could change over the life of
the instrument such that the contractual cash flows over the life of the
instrument could be more than insignificantly different from the benchmark
cash flows. However, an entity shall only consider reasonably possible scenarios
rather than every possible scenario. If an entity is unable to conclude that
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� IFRS Foundation