Classification and Measurement: Limited Amendments to IFRS 9

CLASSIFICATION AND MEASUREMENT: LIMITED AMENDMENTS TO IFRS 9 (PROPOSED AMENDMENTS TO IFRS 9 (2010))
cost measurement category. 14 Interested parties also indicated that significant
judgement is involved when classifying some portfolios—notably so-called
‘liquidity portfolios’, which are portfolios of assets held by banks to satisfy their
actual or potential liquidity needs, often in response to regulatory
requirements— as being measured at amortised cost or fair value through profit
or loss, and that there may be some inconsistency in the interpretation of
whether the objective of a business model is to hold financial assets to collect
contractual cash flows.
BC11 In addition, the IASB received views from some interested parties about the need
for a ‘fair value through other comprehensive income’ measurement category.
These views mainly related to:
(a) whether measurement at fair value through profit or loss appropriately
reflects the performance of financial assets that are managed both in
order to collect contractual cash flows and for sale, so as to maximise a
return from a combination of contractual cash flows and fair value gains.
Some believed that the business model assessment results in
classification outcomes that are too limited, ie an entity either holds
assets to collect contractual cash flows, or it is required to measure the
financial assets at fair value through profit or loss, and
(b) the potential accounting mismatch that may arise because of the
interaction between accounting for financial assets in accordance with
IFRS 9 and the accounting for insurance contracts liabilities under the
Insurance Contracts project. In addition, unlike IFRS 9, under the FASB’s
tentative classification and measurement model 15 at the start of the joint
deliberations, financial assets were measured at amortised cost, fair
value through other comprehensive income or fair value through profit
or loss.
BC12 Accordingly, the IASB considered whether, depending on the contractual cash
flows characteristics, financial assets should be mandatorily measured at fair
value through other comprehensive income on the basis of the business model
within which they are held and, if so, what the mechanics of this measurement
category should be. The IASB and the FASB also considered the objective of the
business models for measurement at amortised cost, fair value through other
comprehensive income, and fair value through profit or loss. The boards also
considered which measurement category should be residual.
14 Paragraph B.4.1.3 of IFRS 9 states that if more than an infrequent number of sales are made out of a
portfolio, the entity needs to assess whether, and if so, how, such sales are consistent with the
objective of collecting contractual cash flows (and whether the portfolio would therefore be
measured at amortised cost).
15 One of the stated objectives of these proposals is to reduce key differences with the FASB’s model.
Consequently, depending on the context, references to the FASB’s ‘tentative classification and
measurement model’ may refer to their model (a) before the joint deliberations (because that
affected the issues deliberated), (b) after the joint deliberations (to clarify whether the objective was
achieved), or (c) both (if an aspect of their model did not change as a result of the joint
deliberations).
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