Classification and Measurement: Limited Amendments to IFRS 9

CLASSIFICATION AND MEASUREMENT: LIMITED AMENDMENTS TO IFRS 9 (PROPOSED AMENDMENTS TO IFRS 9 (2010))
(b) address the interaction between the classification and measurement of
financial assets and the accounting for insurance contracts liabilities;
and
(c) increase comparability with the FASB’s tentative classification and
measurement model.
BC18 Prior to the joint deliberations, the FASB had already decided to include a fair
value through other comprehensive income measurement category in their
tentative classification and measurement model for financial assets. This
difference would have resulted in many financial assets being classified
differently under IFRS and US GAAP if the FASB were to finalise those proposals,
because IFRS 9 currently has only two measurement categories for financial
assets.
BC19 The boards jointly decided to propose that financial assets should be
mandatorily measured at fair value through other comprehensive income if,
and only if, 16 they:
(a) have contractual cash flow characteristics that give rise on specified
dates to cash flows that are solely payments of principal and interest on
the principal amount outstanding (paragraph BC46); and
(b) are managed within the relevant business model (described in the
following paragraph).
BC20 The boards decided to propose that if the entity’s business model is to manage
financial assets both to collect contractual cash flows and to sell, 17 financial
assets managed within that business model should be measured at fair value
through other comprehensive income (depending on their contractual cash
flows). The IASB noted that the introduction of the fair value through other
comprehensive income measurement category will also address the feedback of
those interested parties who have questioned the appropriate classification of
financial assets held within a business model in which assets are managed both
in order to collect contractual cash flows and for sale. 18
BC21 The IASB acknowledged that a third measurement category adds complexity to
IFRS 9. However, the IASB believes that, for some financial assets, measurement
at fair value through other comprehensive income would reflect their
performance better than measurement at either amortised cost or fair value
through profit or loss, and that the complexity would be justified by the
usefulness of the information provided.
BC22 For a business model in which financial assets are managed both in order to
collect contractual cash flows and for sale, performance will be affected by both
16 Subject to eligibility for, and election of, the fair value option (paragraph BC74).
17 The business model assessment is made for a group of financial assets, and therefore an expectation
to hold (some assets) and an expectation to sell (some assets) are not mutually exclusive.
18 In contrast, the IASB is aware that other interested parties believe that the
two-measurement-category classification approach in IFRS 9 results in an appropriate reflection of
business models for managing financial assets. Some have stated this view within the context of
interpreting a ‘hold to collect’ business model that is broader than the IASB intended (paragraphs
BC13–BC16) and therefore might have a different view in the light of the clarifications to amortised
cost.
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