IFRS 9 - Financial Instruments

ISSUER: IASB

STATUS: Final

LAST MODIFIED: 12/10/2017

DOCUMENT ID: IFRS 9

Library / External Standards / International Accounting Standards Board (IASB) /

DOCUMENT LOCATION: IFRS Standards applicable for annual periods beginning on 1 January 2019 /

IFRS / IFRS 9 Financial Instruments / IFRS 9 Financial Instruments

In April 2001 the International Accounting Standards Board (Board) adopted IAS 39Financial Instruments:

Recognition and Measurement, which had originally been issued by the International Accounting Standards

Committee in March 1999.

The Board had always intended that IFRS 9 Financial Instruments would replace IAS 39 in its entirety. However,

in response to requests from interested parties that the accounting for financial instruments should be improved

quickly, the Board divided its project to replace IAS 39 into three main phases. As the Board completed each

phase, it issued chapters in IFRS 9 that replaced the corresponding requirements in IAS 39.

In November 2009 the Board issued the chapters of IFRS 9 relating to the classification and measurement of

financial assets. In October 2010 the Board added the requirements related to the classification and

measurement of financial liabilities to IFRS 9. This includes requirements on embedded derivatives and how to

account for changes in own credit risk on financial liabilities designated under the fair value option.

In October 2010 the Board also decided to carry forward unchanged from IAS 39 the requirements related to the

derecognition of financial assets and financial liabilities. Because of these changes, in October 2010 the Board

restructured IFRS 9 and its Basis for Conclusions. In December 2011 the Board deferred the mandatory
effective date of IFRS 9.

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 In November 2013 the Board added a Hedge Accounting chapter. IFRS 9 permits an entity to choose as its

accounting policy either to apply the hedge accounting requirements of IFRS 9 or to continue to apply the hedge

accounting requirements in IAS 39. Consequently, although IFRS 9 is effective (with limited exceptions for

entities that issue insurance contracts and entities applying the IFRS for SMEs Standard), IAS 39, which now

contains only its requirements for hedge accounting, also remains effective.

In July 2014 the Board issued the completed version of IFRS 9. The Board made limited amendments to the

classification and measurement requirements for financial assets by addressing a narrow range of application

questions and by introducing a ‘fair value through other comprehensive income’ measurement category for

particular simple debt instruments. The Board also added the impairment requirements relating to the accounting

for an entity’s expected credit losses on its financial assets and commitments to extend credit. A new mandatory

effective date was also set.

In October 2017 IFRS 9 was amended by Prepayment Features with Negative Compensation (Amendments to

IFRS 9). The amendments specify that particular financial assets with prepayment features that may result in

reasonable negative compensation for the early termination of such contracts are eligible to be measured at

amortised cost or at fair value through other comprehensive income.

Other Standards have made minor consequential amendments to IFRS 9. They include Severe Hyperinflation

and Removal of Fixed Dates for First-time Adopters (Amendments to IFRS 1) (issued December 2010), IFRS

10Consolidated Financial Statements (issued May 2011), IFRS 11Joint Arrangements (issued May 2011), IFRS

13Fair Value Measurement (issued May 2011), IAS 19Employee Benefits (issued June 2011), Annual

Improvements to IFRSs 2010–2012 Cycle (issued December 2013), IFRS 15Revenue from Contracts with
Customers (issued May 2014) and IFRS 16Leases (issued January 2016).

International Financial Reporting Standard 9 Financial Instruments

International Financial Reporting Standard 9 Financial Instruments (IFRS 9) is set out in paragraphs 1.1–7.3.2 and

Appendices A–C. All the paragraphs have equal authority. Paragraphs in bold type state the main principles.
Terms defined in Appendix A are in italics the first time they appear in the IFRS. Definitions of other terms are

given in the Glossary for International Financial Reporting Standards. IFRS 9 should be read in the context of its

objective and the Basis for Conclusions, the Preface to IFRS Standards and the Conceptual Framework for
Financial Reporting. IAS 8Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for

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 selecting and applying accounting policies in the absence of explicit guidance.

Chapter 1 Objective
1.1 The objective of this Standard is to establish principles for the financial reporting of financial assets and

financial liabilities that will present relevant and useful information to users of financial statements for their

assessment of the amounts, timing and uncertainty of an entity's future cash flows.

Chapter 2 Scope
2.1 This Standard shall be applied by all entities to all types of financial instruments except:

(a) those interests in subsidiaries, associates and joint ventures that are accounted for in

accordance with IFRS 10Consolidated Financial Statements, IAS 27Separate Financial

Statements or IAS 28Investments in Associates and Joint Ventures. However, in some

cases, IFRS 10, IAS 27 or IAS 28 require or permit an entity to account for an interest in a

subsidiary, associate or joint venture in accordance with some or all of the requirements

of this Standard. Entities shall also apply this Standard to derivatives on an interest in a
subsidiary, associate or joint venture unless the derivative meets the definition of an

equity instrument of the entity in IAS 32Financial Instruments: Presentation.

(b) rights and obligations under leases to which IFRS 16Leases applies. However:

(i) finance lease receivables (ie net investments in finance leases) and operating lease

receivables recognised by a lessor are subject to the derecognition and impairment

requirements of this Standard;

(ii) lease liabilities recognised by a lessee are subject to the derecognition requirements

in paragraph 3.3.1 of this Standard; and

(iii) derivatives that are embedded in leases are subject to the embedded derivatives

requirements of this Standard.

(c) employers' rights and obligations under employee benefit plans, to which IAS 19Employee

Benefits applies.

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 (d) financial instruments issued by the entity that meet the definition of an equity instrument in

IAS 32 (including options and warrants) or that are required to be classified as an equity

instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of IAS

32. However, the holder of such equity instruments shall apply this Standard to those

instruments, unless they meet the exception in (a).

(e) rights and obligations arising under (i) an insurance contract as defined in IFRS 4Insurance

Contracts, other than an issuer's rights and obligations arising under an insurance

contract that meets the definition of a financial guarantee contract, or (ii) a contract that is

within the scope of IFRS 4 because it contains a discretionary participation feature.

However, this Standard applies to a derivative that is embedded in a contract within the

scope of IFRS 4 if the derivative is not itself a contract within the scope of IFRS 4.
Moreover, if an issuer of financial guarantee contracts has previously asserted explicitly

that it regards such contracts as insurance contracts and has used accounting that is

applicable to insurance contracts, the issuer may elect to apply either this Standard or

IFRS 4 to such financial guarantee contracts (see paragraphs B2.5-B2.6). The issuer may

make that election contract by contract, but the election for each contract is irrevocable.

(f) any forward contract between an acquirer and a selling shareholder to buy or sell an

acquiree that will result in a business combination within the scope of IFRS 3Business

Combinations at a future acquisition date. The term of the forward contract should not

exceed a reasonable period normally necessary to obtain any required approvals and to
complete the transaction.

EY INTERNAL USE ONLY

EY Q&A

(g) loan commitments other than those loan commitments described in paragraph 2.3.

However, an issuer of loan commitments shall apply the impairment requirements of this

Standard to loan commitments that are not otherwise within the scope of this Standard.

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 Also, all loan commitments are subject to the derecognition requirements of this

Standard.

(h) financial instruments, contracts and obligations under share-based payment transactions

to which IFRS 2Share-based Payment applies, except for contracts within the scope of

paragraphs 2.4-2.7 of this Standard to which this Standard applies.

(i) rights to payments to reimburse the entity for expenditure that it is required to make to

settle a liability that it recognises as a provision in accordance with IAS 37Provisions,

Contingent Liabilities and Contingent Assets, or for which, in an earlier period, it

recognised a provision in accordance with IAS 37.

(j) rights and obligations within the scope of IFRS 15Revenue from Contracts with Customers

that are financial instruments, except for those that IFRS 15 specifies are accounted for in

accordance with this Standard.

2.2 The impairment requirements of this Standard shall be applied to those rights that IFRS 15

specifies are accounted for in accordance with this Standard for the purposes of recognising

impairment gains or losses.

2.3 The following loan commitments are within the scope of this Standard:

(a) loan commitments that the entity designates as financial liabilities at fair value through

profit or loss (see paragraph 4.2.2). An entity that has a past practice of selling the assets

resulting from its loan commitments shortly after origination shall apply this Standard to
all its loan commitments in the same class.

(b) loan commitments that can be settled net in cash or by delivering or issuing another

financial instrument. These loan commitments are derivatives. A loan commitment is not

regarded as settled net merely because the loan is paid out in instalments (for example, a
mortgage construction loan that is paid out in instalments in line with the progress of

construction).

(c) commitments to provide a loan at a below-market interest rate (see paragraph 4.2.1(d)).

2.4 This Standard shall be applied to those contracts to buy or sell a non-financial item that can be

settled net in cash or another financial instrument, or by exchanging financial instruments, as if

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 the contracts were financial instruments, with the exception of contracts that were entered into

and continue to be held for the purpose of the receipt or delivery of a non-financial item in

accordance with the entity's expected purchase, sale or usage requirements. However, this

Standard shall be applied to those contracts that an entity designates as measured at fair value

through profit or loss in accordance with paragraph 2.5.

2.5 A contract to buy or sell a non-financial item that can be settled net in cash or another financial

instrument, or by exchanging financial instruments, as if the contract was a financial instrument,

may be irrevocably designated as measured at fair value through profit or loss even if it was

entered into for the purpose of the receipt or delivery of a non-financial item in accordance with

the entity's expected purchase, sale or usage requirements. This designation is available only at

inception of the contract and only if it eliminates or significantly reduces a recognition

inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise

from not recognising that contract because it is excluded from the scope of this Standard (see

paragraph 2.4).

EY INTERNAL USE ONLY

EY Q&A

2.6 There are various ways in which a contract to buy or sell a non-financial item can be settled net in cash or

another financial instrument or by exchanging financial instruments. These include:

(a) when the terms of the contract permit either party to settle it net in cash or another financial

instrument or by exchanging financial instruments;

(b) when the ability to settle net in cash or another financial instrument, or by exchanging financial

instruments, is not explicit in the terms of the contract, but the entity has a practice of settling

similar contracts net in cash or another financial instrument or by exchanging financial

instruments (whether with the counterparty, by entering into offsetting contracts or by selling the

contract before its exercise or lapse);

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 (c) when, for similar contracts, the entity has a practice of taking delivery of the underlying and selling

it within a short period after delivery for the purpose of generating a profit from short-term

fluctuations in price or dealer's margin; and

(d) when the non-financial item that is the subject of the contract is readily convertible to cash.

A contract to which (b) or (c) applies is not entered into for the purpose of the receipt or delivery of the

non-financial item in accordance with the entity's expected purchase, sale or usage requirements and,

accordingly, is within the scope of this Standard. Other contracts to which paragraph 2.4 applies are

evaluated to determine whether they were entered into and continue to be held for the purpose of the

receipt or delivery of the non-financial item in accordance with the entity's expected purchase, sale or

usage requirements and, accordingly, whether they are within the scope of this Standard.

EY INTERNAL USE ONLY

EY Q&A

2.7 A written option to buy or sell a non-financial item that can be settled net in cash or another financial

instrument, or by exchanging financial instruments, in accordance with paragraph 2.6(a) or 2.6(d) is within

the scope of this Standard. Such a contract cannot be entered into for the purpose of the receipt or

delivery of the non-financial item in accordance with the entity's expected purchase, sale or usage

requirements.

Chapter 3 Recognition and derecognition

3.1 Initial recognition
3.1.1 An entity shall recognise a financial asset or a financial liability in its statement of financial

position when, and only when, the entity becomes party to the contractual provisions of the

instrument (see paragraphs B3.1.1 and B3.1.2). When an entity first recognises a financial
asset, it shall classify it in accordance with paragraphs 4.1.1-4.1.5 and measure it in accordance

with paragraphs 5.1.1-5.1.3. When an entity first recognises a financial liability, it shall classify

it in accordance with paragraphs 4.2.1 and 4.2.2 and measure it in accordance with paragraph
5.1.1.
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 Regular way purchase or sale of financial assets
3.1.2 A regular way purchase or sale of financial assets shall be recognised and derecognised, as

applicable, using trade date accounting or settlement date accounting (see paragraphs B3.1.3-

B3.1.6).

3.2 Derecognition of financial assets

3.2.1 In consolidated financial statements, paragraphs 3.2.2-3.2.9, B3.1.1, B3.1.2 and B3.2.1-B3.2.17 are

applied at a consolidated level. Hence, an entity first consolidates all subsidiaries in accordance with

IFRS 10 and then applies those paragraphs to the resulting group.

3.2.2 Before evaluating whether, and to what extent, derecognition is appropriate under paragraphs

3.2.3-3.2.9, an entity determines whether those paragraphs should be applied to a part of a

financial asset (or a part of a group of similar financial assets) or a financial asset (or a group of

similar financial assets) in its entirety, as follows:

(a) Paragraphs 3.2.3-3.2.9 are applied to a part of a financial asset (or a part of a group of

similar financial assets) if, and only if, the part being considered for derecognition meets

one of the following three conditions.

(i) The part comprises only specifically identified cash flows from a financial asset (or a

group of similar financial assets). For example, when an entity enters into an interest

rate strip whereby the counterparty obtains the right to the interest cash flows, but

not the principal cash flows from a debt instrument, paragraphs 3.2.3-3.2.9 are

applied to the interest cash flows.

(ii) The part comprises only a fully proportionate (pro rata) share of the cash flows from

a financial asset (or a group of similar financial assets). For example, when an entity

enters into an arrangement whereby the counterparty obtains the rights to a 90 per
cent share of all cash flows of a debt instrument, paragraphs 3.2.3-3.2.9 are applied

to 90 per cent of those cash flows. If there is more than one counterparty, each

counterparty is not required to have a proportionate share of the cash flows

provided that the transferring entity has a fully proportionate share.

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 (iii) The part comprises only a fully proportionate (pro rata) share of specifically

identified cash flows from a financial asset (or a group of similar financial assets).

For example, when an entity enters into an arrangement whereby the counterparty

obtains the rights to a 90 per cent share of interest cash flows from a financial asset,

paragraphs 3.2.3-3.2.9 are applied to 90 per cent of those interest cash flows. If there

is more than one counterparty, each counterparty is not required to have a

proportionate share of the specifically identified cash flows provided that the

transferring entity has a fully proportionate share.

(b) In all other cases, paragraphs 3.2.3-3.2.9 are applied to the financial asset in its entirety (or

to the group of similar financial assets in their entirety). For example, when an entity

transfers (i) the rights to the first or the last 90 per cent of cash collections from a financial

asset (or a group of financial assets), or (ii) the rights to 90 per cent of the cash flows from

a group of receivables, but provides a guarantee to compensate the buyer for any credit

losses up to 8 per cent of the principal amount of the receivables, paragraphs 3.2.3-3.2.9
are applied to the financial asset (or a group of similar financial assets) in its entirety.

In paragraphs 3.2.3-3.2.12, the term 'financial asset' refers to either a part of a financial

asset (or a part of a group of similar financial assets) as identified in (a) above or,

otherwise, a financial asset (or a group of similar financial assets) in its entirety.

3.2.3 An entity shall derecognise a financial asset when, and only when:

(a) the contractual rights to the cash flows from the financial asset expire, or

(b) it transfers the financial asset as set out in paragraphs 3.2.4 and 3.2.5 and the transfer

qualifies for derecognition in accordance with paragraph 3.2.6.

(See paragraph 3.1.2 for regular way sales of financial assets.)

3.2.4 An entity transfers a financial asset if, and only if, it either:

(a) transfers the contractual rights to receive the cash flows of the financial asset, or

(b) retains the contractual rights to receive the cash flows of the financial asset, but assumes

a contractual obligation to pay the cash flows to one or more recipients in an arrangement

that meets the conditions in paragraph 3.2.5.

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 3.2.5 When an entity retains the contractual rights to receive the cash flows of a financial asset (the

'original asset'), but assumes a contractual obligation to pay those cash flows to one or more

entities (the 'eventual recipients'), the entity treats the transaction as a transfer of a financial

asset if, and only if, all of the following three conditions are met.

(a) The entity has no obligation to pay amounts to the eventual recipients unless it collects

equivalent amounts from the original asset. Short-term advances by the entity with the

right of full recovery of the amount lent plus accrued interest at market rates do not violate

this condition.

(b) The entity is prohibited by the terms of the transfer contract from selling or pledging the

original asset other than as security to the eventual recipients for the obligation to pay

them cash flows.

(c) The entity has an obligation to remit any cash flows it collects on behalf of the eventual

recipients without material delay. In addition, the entity is not entitled to reinvest such

cash flows, except for investments in cash or cash equivalents (as defined in IAS

7Statement of Cash Flows) during the short settlement period from the collection date to

the date of required remittance to the eventual recipients, and interest earned on such

investments is passed to the eventual recipients.

3.2.6 When an entity transfers a financial asset (see paragraph 3.2.4), it shall evaluate the extent to

which it retains the risks and rewards of ownership of the financial asset. In this case:

(a) if the entity transfers substantially all the risks and rewards of ownership of the financial

asset, the entity shall derecognise the financial asset and recognise separately as assets

or liabilities any rights and obligations created or retained in the transfer.

(b) if the entity retains substantially all the risks and rewards of ownership of the financial

asset, the entity shall continue to recognise the financial asset.

(c) if the entity neither transfers nor retains substantially all the risks and rewards of

ownership of the financial asset, the entity shall determine whether it has retained control

of the financial asset. In this case:

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 (i) if the entity has not retained control, it shall derecognise the financial asset and

recognise separately as assets or liabilities any rights and obligations created or

retained in the transfer.

(ii) if the entity has retained control, it shall continue to recognise the financial asset to

the extent of its continuing involvement in the financial asset (see paragraph 3.2.16).

3.2.7 The transfer of risks and rewards (see paragraph 3.2.6) is evaluated by comparing the entity's exposure,

before and after the transfer, with the variability in the amounts and timing of the net cash flows of the

transferred asset. An entity has retained substantially all the risks and rewards of ownership of a

financial asset if its exposure to the variability in the present value of the future net cash flows from the

financial asset does not change significantly as a result of the transfer (eg because the entity has sold

a financial asset subject to an agreement to buy it back at a fixed price or the sale price plus a lender's
return). An entity has transferred substantially all the risks and rewards of ownership of a financial

asset if its exposure to such variability is no longer significant in relation to the total variability in the

present value of the future net cash flows associated with the financial asset (eg because the entity

has sold a financial asset subject only to an option to buy it back at its fair value at the time of

repurchase or has transferred a fully proportionate share of the cash flows from a larger financial asset

in an arrangement, such as a loan sub-participation, that meets the conditions in paragraph 3.2.5).

3.2.8 Often it will be obvious whether the entity has transferred or retained substantially all risks and rewards

of ownership and there will be no need to perform any computations. In other cases, it will be

necessary to compute and compare the entity's exposure to the variability in the present value of the
future net cash flows before and after the transfer. The computation and comparison are made using

as the discount rate an appropriate current market interest rate. All reasonably possible variability in

net cash flows is considered, with greater weight being given to those outcomes that are more likely to
occur.

3.2.9 Whether the entity has retained control (see paragraph 3.2.6(c)) of the transferred asset depends on the

transferee's ability to sell the asset. If the transferee has the practical ability to sell the asset in its

entirety to an unrelated third party and is able to exercise that ability unilaterally and without needing to
impose additional restrictions on the transfer, the entity has not retained control. In all other cases, the

entity has retained control.

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 Transfers that qualify for derecognition
3.2.10 If an entity transfers a financial asset in a transfer that qualifies for derecognition in its entirety

and retains the right to service the financial asset for a fee, it shall recognise either a servicing

asset or a servicing liability for that servicing contract. If the fee to be received is not expected
to compensate the entity adequately for performing the servicing, a servicing liability for the

servicing obligation shall be recognised at its fair value. If the fee to be received is expected to

be more than adequate compensation for the servicing, a servicing asset shall be recognised
for the servicing right at an amount determined on the basis of an allocation of the carrying
amount of the larger financial asset in accordance with paragraph 3.2.13.

3.2.11 If, as a result of a transfer, a financial asset is derecognised in its entirety but the transfer

results in the entity obtaining a new financial asset or assuming a new financial liability, or a

servicing liability, the entity shall recognise the new financial asset, financial liability or

servicing liability at fair value.

3.2.12 On derecognition of a financial asset in its entirety, the difference between:

(a) the carrying amount (measured at the date of derecognition) and

(b) the consideration received (including any new asset obtained less any new liability

assumed)

shall be recognised in profit or loss.

3.2.13 If the transferred asset is part of a larger financial asset (eg when an entity transfers interest

cash flows that are part of a debt instrument, see paragraph 3.2.2(a)) and the part transferred

qualifies for derecognition in its entirety, the previous carrying amount of the larger financial

asset shall be allocated between the part that continues to be recognised and the part that is

derecognised, on the basis of the relative fair values of those parts on the date of the transfer.

For this purpose, a retained servicing asset shall be treated as a part that continues to be
recognised. The difference between:

(a) the carrying amount (measured at the date of derecognition) allocated to the part

derecognised and

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 (b) the consideration received for the part derecognised (including any new asset obtained

less any new liability assumed)

shall be recognised in profit or loss.

3.2.14 When an entity allocates the previous carrying amount of a larger financial asset between the part that

continues to be recognised and the part that is derecognised, the fair value of the part that continues

to be recognised needs to be measured. When the entity has a history of selling parts similar to the

part that continues to be recognised or other market transactions exist for such parts, recent prices of

actual transactions provide the best estimate of its fair value. When there are no price quotes or

recent market transactions to support the fair value of the part that continues to be recognised, the
best estimate of the fair value is the difference between the fair value of the larger financial asset as a

whole and the consideration received from the transferee for the part that is derecognised.

Transfers that do not qualify for derecognition

3.2.15 If a transfer does not result in derecognition because the entity has retained substantially all

the risks and rewards of ownership of the transferred asset, the entity shall continue to

recognise the transferred asset in its entirety and shall recognise a financial liability for the

consideration received. In subsequent periods, the entity shall recognise any income on the

transferred asset and any expense incurred on the financial liability.

Continuing involvement in transferred assets

3.2.16 If an entity neither transfers nor retains substantially all the risks and rewards of ownership of

a transferred asset, and retains control of the transferred asset, the entity continues to

recognise the transferred asset to the extent of its continuing involvement. The extent of the
entity's continuing involvement in the transferred asset is the extent to which it is exposed to

changes in the value of the transferred asset. For example:

(a) When the entity's continuing involvement takes the form of guaranteeing the transferred

asset, the extent of the entity's continuing involvement is the lower of (i) the amount of the

asset and (ii) the maximum amount of the consideration received that the entity could be
required to repay ('the guarantee amount').

(b) When the entity's continuing involvement takes the form of a written or purchased option

(or both) on the transferred asset, the extent of the entity's continuing involvement is the
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 amount of the transferred asset that the entity may repurchase. However, in the case of a

written put option on an asset that is measured at fair value, the extent of the entity's

continuing involvement is limited to the lower of the fair value of the transferred asset and

the option exercise price (see paragraph B3.2.13).

(c) When the entity's continuing involvement takes the form of a cash-settled option or similar

provision on the transferred asset, the extent of the entity's continuing involvement is

measured in the same way as that which results from non-cash settled options as set out

in (b) above.

3.2.17 When an entity continues to recognise an asset to the extent of its continuing involvement, the

entity also recognises an associated liability. Despite the other measurement requirements in

this Standard, the transferred asset and the associated liability are measured on a basis that

reflects the rights and obligations that the entity has retained. The associated liability is

measured in such a way that the net carrying amount of the transferred asset and the

associated liability is:

(a) the amortised cost of the rights and obligations retained by the entity, if the transferred

asset is measured at amortised cost, or

(b) equal to the fair value of the rights and obligations retained by the entity when measured

on a stand-alone basis, if the transferred asset is measured at fair value.

3.2.18 The entity shall continue to recognise any income arising on the transferred asset to the extent

of its continuing involvement and shall recognise any expense incurred on the associated

liability.

3.2.19 For the purpose of subsequent measurement, recognised changes in the fair value of the

transferred asset and the associated liability are accounted for consistently with each other in

accordance with paragraph 5.7.1, and shall not be offset.

3.2.20 If an entity's continuing involvement is in only a part of a financial asset (eg when an entity

retains an option to repurchase part of a transferred asset, or retains a residual interest that

does not result in the retention of substantially all the risks and rewards of ownership and the
entity retains control), the entity allocates the previous carrying amount of the financial asset

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 between the part it continues to recognise under continuing involvement, and the part it no

longer recognises on the basis of the relative fair values of those parts on the date of the

transfer. For this purpose, the requirements of paragraph 3.2.14 apply. The difference

between:

(a) the carrying amount (measured at the date of derecognition) allocated to the part that is no

longer recognised and

(b) the consideration received for the part no longer recognised shall be recognised in profit

or loss.

3.2.21 If the transferred asset is measured at amortised cost, the option in this Standard to designate a

financial liability as at fair value through profit or loss is not applicable to the associated liability.
All transfers
3.2.22 If a transferred asset continues to be recognised, the asset and the associated liability shall

not be offset. Similarly, the entity shall not offset any income arising from the transferred

asset with any expense incurred on the associated liability (see paragraph 42 of IAS 32).

3.2.23 If a transferor provides non-cash collateral (such as debt or equity instruments) to the

transferee, the accounting for the collateral by the transferor and the transferee depends on

whether the transferee has the right to sell or repledge the collateral and on whether the

transferor has defaulted. The transferor and transferee shall account for the collateral as

follows:

(a) If the transferee has the right by contract or custom to sell or repledge the collateral, then

the transferor shall reclassify that asset in its statement of financial position (eg as a

loaned asset, pledged equity instruments or repurchase receivable) separately from other
assets.

(b) If the transferee sells collateral pledged to it, it shall recognise the proceeds from the sale

and a liability measured at fair value for its obligation to return the collateral.

(c) If the transferor defaults under the terms of the contract and is no longer entitled to redeem

the collateral, it shall derecognise the collateral, and the transferee shall recognise the

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 collateral as its asset initially measured at fair value or, if it has already sold the collateral,

derecognise its obligation to return the collateral.

(d) Except as provided in (c), the transferor shall continue to carry the collateral as its asset,

and the transferee shall not recognise the collateral as an asset.

3.3 Derecognition of financial liabilities

3.3.1 An entity shall remove a financial liability (or a part of a financial liability) from its statement of

financial position when, and only when, it is extinguished—ie when the obligation specified in

the contract is discharged or cancelled or expires.

3.3.2 An exchange between an existing borrower and lender of debt instruments with substantially

different terms shall be accounted for as an extinguishment of the original financial liability

and the recognition of a new financial liability. Similarly, a substantial modification of the

terms of an existing financial liability or a part of it (whether or not attributable to the financial

difficulty of the debtor) shall be accounted for as an extinguishment of the original financial

liability and the recognition of a new financial liability.

3.3.3 The difference between the carrying amount of a financial liability (or part of a financial liability)

extinguished or transferred to another party and the consideration paid, including any non-

cash assets transferred or liabilities assumed, shall be recognised in profit or loss.

3.3.4 If an entity repurchases a part of a financial liability, the entity shall allocate the previous carrying

amount of the financial liability between the part that continues to be recognised and the part that is

derecognised based on the relative fair values of those parts on the date of the repurchase. The

difference between (a) the carrying amount allocated to the part derecognised and (b) the

consideration paid, including any non-cash assets transferred or liabilities assumed, for the part

derecognised shall be recognised in profit or loss.

3.3.5 [This paragraph refers to amendments that are not yet effective, and is therefore not included in this

edition.]

Chapter 4 Classification
4.1 Classification of financial assets
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 4.1.1 Unless paragraph 4.1.5 applies, an entity shall classify financial assets as subsequently

measured at amortised cost, fair value through other comprehensive income or fair value

through profit or loss on the basis of both:

(a) the entity's business model for managing the financial assets and

(b) the contractual cash flow characteristics of the financial asset.

4.1.2 A financial asset shall be measured at amortised cost if both of the following conditions are met:

(a) the financial asset is held within a business model whose objective is to hold financial

assets in order to collect contractual cash flows and

(b) the contractual terms of the financial asset give rise on specified dates to cash flows that

are solely payments of principal and interest on the principal amount outstanding.

Paragraphs B4.1.1-B4.1.26 provide guidance on how to apply these conditions.

4.1.2A A financial asset shall be measured at fair value through other comprehensive income if both

of the following conditions are met:

(a) the financial asset is held within a business model whose objective is achieved by both

collecting contractual cash flows and selling financial assets and

(b) the contractual terms of the financial asset give rise on specified dates to cash flows that

are solely payments of principal and interest on the principal amount outstanding.

Paragraphs B4.1.1-B4.1.26 provide guidance on how to apply these conditions.

4.1.3 For the purpose of applying paragraphs 4.1.2(b) and 4.1.2A(b):

(a) principal is the fair value of the financial asset at initial recognition. Paragraph B4.1.7B

provides additional guidance on the meaning of principal.

(b) interest consists of consideration for the time value of money, for the credit risk associated

with the principal amount outstanding during a particular period of time and for other

basic lending risks and costs, as well as a profit margin. Paragraphs B4.1.7A and B4.1.9A-
B4.1.9E provide additional guidance on the meaning of interest, including the meaning of

the time value of money.

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 4.1.4 A financial asset shall be measured at fair value through profit or loss unless it is measured at

amortised cost in accordance with paragraph 4.1.2 or at fair value through other

comprehensive income in accordance with paragraph 4.1.2A. However an entity may make an

irrevocable election at initial recognition for particular investments in equity instruments that

would otherwise be measured at fair value through profit or loss to present subsequent

changes in fair value in other comprehensive income (see paragraphs 5.7.5-5.7.6).

Option to designate a financial asset at fair value through profit or

loss
4.1.5 Despite paragraphs 4.1.1-4.1.4, an entity may, at initial recognition, irrevocably designate a

financial asset as measured at fair value through profit or loss if doing so eliminates or

significantly reduces a measurement or recognition inconsistency (sometimes referred to as an

'accounting mismatch') that would otherwise arise from measuring assets or liabilities or

recognising the gains and losses on them on different bases (see paragraphs B4.1.29-B4.1.32).

4.2 Classification of financial liabilities

4.2.1 An entity shall classify all financial liabilities as subsequently measured at amortised cost,

except for:

(a) financial liabilities at fair value through profit or loss. Such liabilities, including derivatives

that are liabilities, shall be subsequently measured at fair value.

(b) financial liabilities that arise when a transfer of a financial asset does not qualify for

derecognition or when the continuing involvement approach applies. Paragraphs 3.2.15

and 3.2.17 apply to the measurement of such financial liabilities.

(c) financial guarantee contracts. After initial recognition, an issuer of such a contract shall

(unless paragraph 4.2.1(a) or (b) applies) subsequently measure it at the higher of:

(i) the amount of the loss allowance determined in accordance with Section 5.5 and

(ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the

cumulative amount of income recognised in accordance with the principles of IFRS

15.

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 (d) commitments to provide a loan at a below-market interest rate. An issuer of such a

commitment shall (unless paragraph 4.2.1(a) applies) subsequently measure it at the

higher of:

(i) the amount of the loss allowance determined in accordance with Section 5.5 and

(ii) the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the

cumulative amount of income recognised in accordance with the principles of IFRS

15.

(e) contingent consideration recognised by an acquirer in a business combination to which

IFRS 3 applies. Such contingent consideration shall subsequently be measured at fair

value with changes recognised in profit or loss.

Option to designate a financial liability at fair value through profit or

loss
4.2.2 An entity may, at initial recognition, irrevocably designate a financial liability as measured at fair

value through profit or loss when permitted by paragraph 4.3.5, or when doing so results in

more relevant information, because either:

(a) it eliminates or significantly reduces a measurement or recognition inconsistency

(sometimes referred to as 'an accounting mismatch') that would otherwise arise from

measuring assets or liabilities or recognising the gains and losses on them on different

bases (see paragraphs B4.1.29-B4.1.32); or

(b) a group of financial liabilities or financial assets and financial liabilities is managed and its

performance is evaluated on a fair value basis, in accordance with a documented risk

management or investment strategy, and information about the group is provided

internally on that basis to the entity's key management personnel (as defined in IAS

24Related Party Disclosures), for example, the entity's board of directors and chief

executive officer (see paragraphs B4.1.33-B4.1.36).

4.3 Embedded derivatives

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 EY INTERNAL USE ONLY

EY Q&A

4.3.1 An embedded derivative is a component of a hybrid contract that also includes a non-derivative host—

with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-

alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be
required by the contract to be modified according to a specified interest rate, financial instrument price,

commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other

variable, provided in the case of a non-financial variable that the variable is not specific to a party to
the contract. A derivative that is attached to a financial instrument but is contractually transferable

independently of that instrument, or has a different counterparty, is not an embedded derivative, but a

separate financial instrument.

Hybrid contracts with financial asset hosts

4.3.2 If a hybrid contract contains a host that is an asset within the scope of this Standard, an entity

shall apply the requirements in paragraphs 4.1.1-4.1.5 to the entire hybrid contract.

Other hybrid contracts

EY INTERNAL USE ONLY

EY Q&A

4.3.3 If a hybrid contract contains a host that is not an asset within the scope of this Standard, an

embedded derivative shall be separated from the host and accounted for as a derivative under

this Standard if, and only if:

(a) the economic characteristics and risks of the embedded derivative are not closely related

to the economic characteristics and risks of the host (see paragraphs B4.3.5 and B4.3.8);

(b) a separate instrument with the same terms as the embedded derivative would meet the

definition of a derivative; and

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 (c) the hybrid contract is not measured at fair value with changes in fair value recognised in

profit or loss (ie a derivative that is embedded in a financial liability at fair value through

profit or loss is not separated).

4.3.4 If an embedded derivative is separated, the host contract shall be accounted for in accordance

with the appropriate Standards. This Standard does not address whether an embedded

derivative shall be presented separately in the statement of financial position.

4.3.5 Despite paragraphs 4.3.3 and 4.3.4, if a contract contains one or more embedded derivatives and

the host is not an asset within the scope of this Standard, an entity may designate the entire

hybrid contract as at fair value through profit or loss unless:

(a) the embedded derivative(s) do(es) not significantly modify the cash flows that otherwise

would be required by the contract; or

(b) it is clear with little or no analysis when a similar hybrid instrument is first considered that

separation of the embedded derivative(s) is prohibited, such as a prepayment option

embedded in a loan that permits the holder to prepay the loan for approximately its

amortised cost.

4.3.6 If an entity is required by this Standard to separate an embedded derivative from its host, but is

unable to measure the embedded derivative separately either at acquisition or at the end of a

subsequent financial reporting period, it shall designate the entire hybrid contract as at fair

value through profit or loss.

4.3.7 If an entity is unable to measure reliably the fair value of an embedded derivative on the basis of its

terms and conditions, the fair value of the embedded derivative is the difference between the fair value

of the hybrid contract and the fair value of the host. If the entity is unable to measure the fair value of
the embedded derivative using this method, paragraph 4.3.6 applies and the hybrid contract is

designated as at fair value through profit or loss.

4.4 Reclassification
4.4.1 When, and only when, an entity changes its business model for managing financial assets it

shall reclassify all affected financial assets in accordance with paragraphs 4.1.1-4.1.4. See

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 paragraphs 5.6.1-5.6.7, B4.4.1-B4.4.3 and B5.6.1-B5.6.2 for additional guidance on reclassifying

financial assets.

4.4.2 An entity shall not reclassify any financial liability.

4.4.3 The following changes in circumstances are not reclassifications for the purposes of paragraphs 4.4.1-

4.4.2:

(a) an item that was previously a designated and effective hedging instrument in a cash flow hedge or

net investment hedge no longer qualifies as such;

(b) an item becomes a designated and effective hedging instrument in a cash flow hedge or net

investment hedge; and

(c) changes in measurement in accordance with Section 6.7.

Chapter 5 Measurement
5.1 Initial measurement
5.1.1 Except for trade receivables within the scope of paragraph 5.1.3, at initial recognition, an entity

shall measure a financial asset or financial liability at its fair value plus or minus, in the case of

a financial asset or financial liability not at fair value through profit or loss, transaction costs

that are directly attributable to the acquisition or issue of the financial asset or financial

liability.

5.1.1A However, if the fair value of the financial asset or financial liability at initial recognition differs

from the transaction price, an entity shall apply paragraph B5.1.2A.

5.1.2 When an entity uses settlement date accounting for an asset that is subsequently measured at

amortised cost, the asset is recognised initially at its fair value on the trade date (see paragraphs

B3.1.3-B3.1.6).

5.1.3 Despite the requirement in paragraph 5.1.1, at initial recognition, an entity shall measure trade

receivables at their transaction price (as defined in IFRS 15) if the trade receivables do not contain a

significant financing component in accordance with IFRS 15 (or when the entity applies the practical
expedient in accordance with paragraph 63 of IFRS 15).

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 5.2 Subsequent measurement of financial assets
5.2.1 After initial recognition, an entity shall measure a financial asset in accordance with paragraphs

4.1.1-4.1.5 at:

(a) amortised cost;

(b) fair value through other comprehensive income; or

(c) fair value through profit or loss.

5.2.2 An entity shall apply the impairment requirements in Section 5.5 to financial assets that are

measured at amortised cost in accordance with paragraph 4.1.2 and to financial assets that are

measured at fair value through other comprehensive income in accordance with paragraph
4.1.2A.

5.2.3 An entity shall apply the hedge accounting requirements in paragraphs 6.5.8-6.5.14 (and, if

applicable, paragraphs 89-94 of IAS 39 Financial Instruments: Recognition and Measurement

for the fair value hedge accounting for a portfolio hedge of interest rate risk) to a financial asset

that is designated as a hedged item.1

5.3 Subsequent measurement of financial liabilities

5.3.1 After initial recognition, an entity shall measure a financial liability in accordance with

paragraphs 4.2.1-4.2.2.

5.3.2 An entity shall apply the hedge accounting requirements in paragraphs 6.5.8-6.5.14 (and, if

applicable, paragraphs 89-94 of IAS 39 for the fair value hedge accounting for a portfolio hedge

of interest rate risk) to a financial liability that is designated as a hedged item.

5.4 Amortised cost measurement

Financial assets
Effective interest method
5.4.1 Interest revenue shall be calculated by using the effective interest method (see Appendix A and

paragraphs B5.4.1-B5.4.7). This shall be calculated by applying the effective interest rate to the

gross carrying amount of a financial asset except for:

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 (a) purchased or originated credit-impaired financial assets. For those financial assets, the

entity shall apply the credit-adjusted effective interest rate to the amortised cost of the

financial asset from initial recognition.

(b) financial assets that are not purchased or originated credit-impaired financial assets but

subsequently have become credit-impaired financial assets. For those financial assets,

the entity shall apply the effective interest rate to the amortised cost of the financial asset

in subsequent reporting periods.

5.4.2 An entity that, in a reporting period, calculates interest revenue by applying the effective interest method

to the amortised cost of a financial asset in accordance with paragraph 5.4.1(b), shall, in subsequent

reporting periods, calculate the interest revenue by applying the effective interest rate to the gross

carrying amount if the credit risk on the financial instrument improves so that the financial asset is no

longer credit-impaired and the improvement can be related objectively to an event occurring after the

requirements in paragraph 5.4.1(b) were applied (such as an improvement in the borrower's credit
rating).
Modification of contractual cash flows
5.4.3 When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the

renegotiation or modification does not result in the derecognition of that financial asset in accordance

with this Standard, an entity shall recalculate the gross carrying amount of the financial asset and shall

recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset

shall be recalculated as the present value of the renegotiated or modified contractual cash flows that
are discounted at the financial asset's original effective interest rate (or credit-adjusted effective
interest rate for purchased or originated credit-impaired financial assets) or, when applicable, the

revised effective interest rate calculated in accordance with paragraph 6.5.10. Any costs or fees

incurred adjust the carrying amount of the modified financial asset and are amortised over the

remaining term of the modified financial asset.

Write-off
5.4.4 An entity shall directly reduce the gross carrying amount of a financial asset when the entity has

no reasonable expectations of recovering a financial asset in its entirety or a portion thereof. A

write-off constitutes a derecognition event (see paragraph B3.2.16(r)).

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 5.5 Impairment
Recognition of expected credit losses
General approach
5.5.1 An entity shall recognise a loss allowance for expected credit losses on a financial asset that is

measured in accordance with paragraphs 4.1.2 or 4.1.2A, a lease receivable, a contract asset or

a loan commitment and a financial guarantee contract to which the impairment requirements

apply in accordance with paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).

5.5.2 An entity shall apply the impairment requirements for the recognition and measurement of a loss

allowance for financial assets that are measured at fair value through other comprehensive income

in accordance with paragraph 4.1.2A. However, the loss allowance shall be recognised in other

comprehensive income and shall not reduce the carrying amount of the financial asset in the statement

of financial position.

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EY Q&A

5.5.3 Subject to paragraphs 5.5.13-5.5.16, at each reporting date, an entity shall measure the loss

allowance for a financial instrument at an amount equal to the lifetime expected credit losses if

the credit risk on that financial instrument has increased significantly since initial recognition.

5.5.4 The objective of the impairment requirements is to recognise lifetime expected credit losses for all

financial instruments for which there have been significant increases in credit risk since initial

recognition — whether assessed on an individual or collective basis — considering all reasonable and
supportable information, including that which is forward-looking.

EY INTERNAL USE ONLY

EY Q&A

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 5.5.5 Subject to paragraphs 5.5.13-5.5.16, if, at the reporting date, the credit risk on a financial

instrument has not increased significantly since initial recognition, an entity shall measure the

loss allowance for that financial instrument at an amount equal to 12-month expected credit

losses.

5.5.6 For loan commitments and financial guarantee contracts, the date that the entity becomes a party to the

irrevocable commitment shall be considered to be the date of initial recognition for the purposes of

applying the impairment requirements.

5.5.7 If an entity has measured the loss allowance for a financial instrument at an amount equal to lifetime

expected credit losses in the previous reporting period, but determines at the current reporting date

that paragraph 5.5.3 is no longer met, the entity shall measure the loss allowance at an amount equal

to 12-month expected credit losses at the current reporting date.

5.5.8 An entity shall recognise in profit or loss, as an impairment gain or loss, the amount of expected credit

losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that

is required to be recognised in accordance with this Standard.

Determining significant increases in credit risk
5.5.9 At each reporting date, an entity shall assess whether the credit risk on a financial instrument has

increased significantly since initial recognition. When making the assessment, an entity shall use the

change in the risk of a default occurring over the expected life of the financial instrument instead of the

change in the amount of expected credit losses. To make that assessment, an entity shall compare the

risk of a default occurring on the financial instrument as at the reporting date with the risk of a default
occurring on the financial instrument as at the date of initial recognition and consider reasonable and
supportable information, that is available without undue cost or effort, that is indicative of significant

increases in credit risk since initial recognition.

5.5.10 An entity may assume that the credit risk on a financial instrument has not increased significantly since

initial recognition if the financial instrument is determined to have low credit risk at the reporting date

(see paragraphs B5.5.22–B5.5.24).

5.5.11 If reasonable and supportable forward-looking information is available without undue cost or effort, an

entity cannot rely solely on past due information when determining whether credit risk has increased

significantly since initial recognition. However, when information that is more forward-looking than

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 past due status (either on an individual or a collective basis) is not available without undue cost or

effort, an entity may use past due information to determine whether there have been significant

increases in credit risk since initial recognition. Regardless of the way in which an entity assesses

significant increases in credit risk, there is a rebuttable presumption that the credit risk on a financial

asset has increased significantly since initial recognition when contractual payments are more than 30

days past due. An entity can rebut this presumption if the entity has reasonable and supportable
information that is available without undue cost or effort, that demonstrates that the credit risk has not

increased significantly since initial recognition even though the contractual payments are more than

30 days past due. When an entity determines that there have been significant increases in credit risk

before contractual payments are more than 30 days past due, the rebuttable presumption does not

apply.
Modified financial assets
5.5.12 If the contractual cash flows on a financial asset have been renegotiated or modified and the financial

asset was not derecognised, an entity shall assess whether there has been a significant increase in

the credit risk of the financial instrument in accordance with paragraph 5.5.3 by comparing:

(a) the risk of a default occurring at the reporting date (based on the modified contractual terms); and

(b) the risk of a default occurring at initial recognition (based on the original, unmodified contractual

terms).
Purchased or originated credit-impaired financial assets
5.5.13 Despite paragraphs 5.5.3 and 5.5.5, at the reporting date, an entity shall only recognise the

cumulative changes in lifetime expected credit losses since initial recognition as a loss

allowance for purchased or originated credit-impaired financial assets.

5.5.14 At each reporting date, an entity shall recognise in profit or loss the amount of the change in lifetime

expected credit losses as an impairment gain or loss. An entity shall recognise favourable changes in

lifetime expected credit losses as an impairment gain, even if the lifetime expected credit losses are
less than the amount of expected credit losses that were included in the estimated cash flows on

initial recognition.

Simplified approach for trade receivables, contract assets and lease

receivables

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 5.5.15 Despite paragraphs 5.5.3 and 5.5.5, an entity shall always measure the loss allowance at an

amount equal to lifetime expected credit losses for:

(a) trade receivables or contract assets that result from transactions that are within the scope

of IFRS 15, and that:

(i) do not contain a significant financing component in accordance with IFRS 15 (or

when the entity applies the practical expedient in accordance with paragraph 63 of

IFRS 15); or

(ii) contain a significant financing component in accordance with IFRS 15, if the entity

chooses as its accounting policy to measure the loss allowance at an amount equal

to lifetime expected credit losses. That accounting policy shall be applied to all such

trade receivables or contract assets but may be applied separately to trade

receivables and contract assets.

(b) lease receivables that result from transactions that are within the scope of IFRS 16, if the

entity chooses as its accounting policy to measure the loss allowance at an amount equal

to lifetime expected credit losses. That accounting policy shall be applied to all lease

receivables but may be applied separately to finance and operating lease receivables.

5.5.16 An entity may select its accounting policy for trade receivables, lease receivables and contract assets

independently of each other.

Measurement of expected credit losses

5.5.17 An entity shall measure expected credit losses of a financial instrument in a way that reflects:

(a) an unbiased and probability-weighted amount that is determined by evaluating a range of

possible outcomes;

(b) the time value of money; and

(c) reasonable and supportable information that is available without undue cost or effort at the

reporting date about past events, current conditions and forecasts of future economic

conditions.

5.5.18 When measuring expected credit losses, an entity need not necessarily identify every possible

scenario. However, it shall consider the risk or probability that a credit loss occurs by reflecting the
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 possibility that a credit loss occurs and the possibility that no credit loss occurs, even if the possibility

of a credit loss occurring is very low.

5.5.19 The maximum period to consider when measuring expected credit losses is the maximum contractual

period (including extension options) over which the entity is exposed to credit risk and not a longer

period, even if that longer period is consistent with business practice.

5.5.20 However, some financial instruments include both a loan and an undrawn commitment component and

the entity's contractual ability to demand repayment and cancel the undrawn commitment does not

limit the entity's exposure to credit losses to the contractual notice period. For such financial

instruments, and only those financial instruments, the entity shall measure expected credit losses

over the period that the entity is exposed to credit risk and expected credit losses would not be

mitigated by credit risk management actions, even if that period extends beyond the maximum
contractual period.

5.6 Reclassification of financial assets

5.6.1 If an entity reclassifies financial assets in accordance with paragraph 4.4.1, it shall apply the

reclassification prospectively from the reclassification date. The entity shall not restate any

previously recognised gains, losses (including impairment gains or losses) or interest.

Paragraphs 5.6.2-5.6.7 set out the requirements for reclassifications.

5.6.2 If an entity reclassifies a financial asset out of the amortised cost measurement category and

into the fair value through profit or loss measurement category, its fair value is measured at

the reclassification date. Any gain or loss arising from a difference between the previous

amortised cost of the financial asset and fair value is recognised in profit or loss.

5.6.3 If an entity reclassifies a financial asset out of the fair value through profit or loss measurement

category and into the amortised cost measurement category, its fair value at the

reclassification date becomes its new gross carrying amount. (See paragraph B5.6.2 for
guidance on determining an effective interest rate and a loss allowance at the reclassification

date.)

5.6.4 If an entity reclassifies a financial asset out of the amortised cost measurement category and

into the fair value through other comprehensive income measurement category, its fair value

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 is measured at the reclassification date. Any gain or loss arising from a difference between the

previous amortised cost of the financial asset and fair value is recognised in other

comprehensive income. The effective interest rate and the measurement of expected credit

losses are not adjusted as a result of the reclassification. (See paragraph B5.6.1.)

5.6.5 If an entity reclassifies a financial asset out of the fair value through other comprehensive

income measurement category and into the amortised cost measurement category, the

financial asset is reclassified at its fair value at the reclassification date. However, the

cumulative gain or loss previously recognised in other comprehensive income is removed

from equity and adjusted against the fair value of the financial asset at the reclassification

date. As a result, the financial asset is measured at the reclassification date as if it had always
been measured at amortised cost. This adjustment affects other comprehensive income but

does not affect profit or loss and therefore is not a reclassification adjustment (see IAS

1Presentation of Financial Statements). The effective interest rate and the measurement of

expected credit losses are not adjusted as a result of the reclassification. (See paragraph

B5.6.1.)

5.6.6 If an entity reclassifies a financial asset out of the fair value through profit or loss measurement

category and into the fair value through other comprehensive income measurement category,

the financial asset continues to be measured at fair value. (See paragraph B5.6.2 for guidance

on determining an effective interest rate and a loss allowance at the reclassification date.)

5.6.7 If an entity reclassifies a financial asset out of the fair value through other comprehensive

income measurement category and into the fair value through profit or loss measurement

category, the financial asset continues to be measured at fair value. The cumulative gain or
loss previously recognised in other comprehensive income is reclassified from equity to profit

or loss as a reclassification adjustment (see IAS 1) at the reclassification date.

5.7 Gains and losses

5.7.1 A gain or loss on a financial asset or financial liability that is measured at fair value shall be

recognised in profit or loss unless:

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 (a) it is part of a hedging relationship (see paragraphs 6.5.8-6.5.14 and, if applicable,

paragraphs 89-94 of IAS 39 for the fair value hedge accounting for a portfolio hedge of

interest rate risk);

(b) it is an investment in an equity instrument and the entity has elected to present gains and

losses on that investment in other comprehensive income in accordance with paragraph

5.7.5;

(c) it is a financial liability designated as at fair value through profit or loss and the entity is

required to present the effects of changes in the liability's credit risk in other

comprehensive income in accordance with paragraph 5.7.7; or

(d) it is a financial asset measured at fair value through other comprehensive income in

accordance with paragraph 4.1.2A and the entity is required to recognise some changes in

fair value in other comprehensive income in accordance with paragraph 5.7.10.

5.7.1A Dividends are recognised in profit or loss only when:

(a) the entity's right to receive payment of the dividend is established;

(b) it is probable that the economic benefits associated with the dividend will flow to the entity; and

(c) the amount of the dividend can be measured reliably.

5.7.2 A gain or loss on a financial asset that is measured at amortised cost and is not part of a

hedging relationship (see paragraphs 6.5.8-6.5.14 and, if applicable, paragraphs 89-94 of IAS

39 for the fair value hedge accounting for a portfolio hedge of interest rate risk) shall be
recognised in profit or loss when the financial asset is derecognised, reclassified in

accordance with paragraph 5.6.2, through the amortisation process or in order to recognise

impairment gains or losses. An entity shall apply paragraphs 5.6.2 and 5.6.4 if it reclassifies
financial assets out of the amortised cost measurement category. A gain or loss on a financial

liability that is measured at amortised cost and is not part of a hedging relationship (see

paragraphs 6.5.8-6.5.14 and, if applicable, paragraphs 89-94 of IAS 39 for the fair value hedge

accounting for a portfolio hedge of interest rate risk) shall be recognised in profit or loss when

the financial liability is derecognised and through the amortisation process. (See paragraph

B5.7.2 for guidance on foreign exchange gains or losses.)

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 5.7.3 A gain or loss on financial assets or financial liabilities that are hedged items in a hedging

relationship shall be recognised in accordance with paragraphs 6.5.8-6.5.14 and, if applicable,

paragraphs 89-94 of IAS 39 for the fair value hedge accounting for a portfolio hedge of interest

rate risk.

5.7.4 If an entity recognises financial assets using settlement date accounting (see paragraphs 3.1.2,

B3.1.3 and B3.1.6), any change in the fair value of the asset to be received during the period

between the trade date and the settlement date is not recognised for assets measured at

amortised cost. For assets measured at fair value, however, the change in fair value shall be

recognised in profit or loss or in other comprehensive income, as appropriate in accordance

with paragraph 5.7.1. The trade date shall be considered the date of initial recognition for the
purposes of applying the impairment requirements.

Investments in equity instruments

5.7.5 At initial recognition, an entity may make an irrevocable election to present in other

comprehensive income subsequent changes in the fair value of an investment in an equity

instrument within the scope of this Standard that is neither held for trading nor contingent

consideration recognised by an acquirer in a business combination to which IFRS 3 applies.

(See paragraph B5.7.3 for guidance on foreign exchange gains or losses.)

5.7.6 If an entity makes the election in paragraph 5.7.5, it shall recognise in profit or loss dividends from that

investment in accordance with paragraph 5.7.1A.

Liabilities designated as at fair value through profit or loss

5.7.7 An entity shall present a gain or loss on a financial liability that is designated as at fair value

through profit or loss in accordance with paragraph 4.2.2 or paragraph 4.3.5 as follows:

(a) The amount of change in the fair value of the financial liability that is attributable to

changes in the credit risk of that liability shall be presented in other comprehensive

income (see paragraphs B5.7.13-B5.7.20), and

(b) the remaining amount of change in the fair value of the liability shall be presented in profit

or loss

unless the treatment of the effects of changes in the liability's credit risk described in (a) would

create or enlarge an accounting mismatch in profit or loss (in which case paragraph 5.7.8 applies).
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 Paragraphs B5.7.5-B5.7.7 and B5.7.10-B5.7.12 provide guidance on determining whether an

accounting mismatch would be created or enlarged.

5.7.8 If the requirements in paragraph 5.7.7 would create or enlarge an accounting mismatch in profit

or loss, an entity shall present all gains or losses on that liability (including the effects of

changes in the credit risk of that liability) in profit or loss.

5.7.9 Despite the requirements in paragraphs 5.7.7 and 5.7.8, an entity shall present in profit or loss all gains

and losses on loan commitments and financial guarantee contracts that are designated as at fair value

through profit or loss.

Assets measured at fair value through other comprehensive income

5.7.10 A gain or loss on a financial asset measured at fair value through other comprehensive income

in accordance with paragraph 4.1.2A shall be recognised in other comprehensive income,

except for impairment gains or losses (see Section 5.5) and foreign exchange gains and losses

(see paragraphs B5.7.2-B5.7.2A), until the financial asset is derecognised or reclassified. When

the financial asset is derecognised the cumulative gain or loss previously recognised in other

comprehensive income is reclassified from equity to profit or loss as a reclassification

adjustment (see IAS 1). If the financial asset is reclassified out of the fair value through other

comprehensive income measurement category, the entity shall account for the cumulative gain

or loss that was previously recognised in other comprehensive income in accordance with

paragraphs 5.6.5 and 5.6.7. Interest calculated using the effective interest method is recognised

in profit or loss.

5.7.11 As described in paragraph 5.7.10, if a financial asset is measured at fair value through other

comprehensive income in accordance with paragraph 4.1.2A, the amounts that are recognised

in profit or loss are the same as the amounts that would have been recognised in profit or loss
if the financial asset had been measured at amortised cost.

Chapter 6 Hedge accounting

6.1 Objective and scope of hedge accounting
6.1.1 The objective of hedge accounting is to represent, in the financial statements, the effect of an entity's

risk management activities that use financial instruments to manage exposures arising from particular

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 risks that could affect profit or loss (or other comprehensive income, in the case of investments in

equity instruments for which an entity has elected to present changes in fair value in other

comprehensive income in accordance with paragraph 5.7.5). This approach aims to convey the context

of hedging instruments for which hedge accounting is applied in order to allow insight into their

purpose and effect.

EY INTERNAL USE ONLY

EY Q&A

6.1.2 An entity may choose to designate a hedging relationship between a hedging instrument and a hedged

item in accordance with paragraphs 6.2.1-6.3.7 and B6.2.1-B6.3.25. For hedging relationships that

meet the qualifying criteria, an entity shall account for the gain or loss on the hedging instrument and

the hedged item in accordance with paragraphs 6.5.1-6.5.14 and B6.5.1-B6.5.28. When the hedged

item is a group of items, an entity shall comply with the additional requirements in paragraphs 6.6.1-

6.6.6 and B6.6.1-B6.6.16.

6.1.3 For a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities

(and only for such a hedge), an entity may apply the hedge accounting requirements in IAS 39 instead

of those in this Standard. In that case, the entity must also apply the specific requirements for the fair

value hedge accounting for a portfolio hedge of interest rate risk and designate as the hedged item a
portion that is a currency amount (see paragraphs 81A, 89A and AG114-AG132 of IAS 39).

6.2 Hedging instruments

Qualifying instruments
6.2.1 A derivative measured at fair value through profit or loss may be designated as a hedging

instrument, except for some written options (see paragraph B6.2.4).

6.2.2 A non-derivative financial asset or a non-derivative financial liability measured at fair value

through profit or loss may be designated as a hedging instrument unless it is a financial

liability designated as at fair value through profit or loss for which the amount of its change in
fair value that is attributable to changes in the credit risk of that liability is presented in other

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 comprehensive income in accordance with paragraph 5.7.7. For a hedge of foreign currency

risk, the foreign currency risk component of a non-derivative financial asset or a non-derivative

financial liability may be designated as a hedging instrument provided that it is not an

investment in an equity instrument for which an entity has elected to present changes in fair

value in other comprehensive income in accordance with paragraph 5.7.5.

EY INTERNAL USE ONLY

EY Q&A

6.2.3 For hedge accounting purposes, only contracts with a party external to the reporting entity (ie

external to the group or individual entity that is being reported on) can be designated as

hedging instruments.

Designation of hedging instruments

EY INTERNAL USE ONLY

EY Q&A

6.2.4 A qualifying instrument must be designated in its entirety as a hedging instrument. The only exceptions

permitted are:

(a) separating the intrinsic value and time value of an option contract and designating as the hedging

instrument only the change in intrinsic value of an option and not the change in its time value (see

paragraphs 6.5.15 and B6.5.29-B6.5.33);

(b) separating the forward element and the spot element of a forward contract and designating as the

hedging instrument only the change in the value of the spot element of a forward contract and not

the forward element; similarly, the foreign currency basis spread may be separated and excluded
from the designation of a financial instrument as the hedging instrument (see paragraphs 6.5.16

and B6.5.34-B6.5.39); and

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 (c) a proportion of the entire hedging instrument, such as 50 per cent of the nominal amount, may be

designated as the hedging instrument in a hedging relationship. However, a hedging instrument

may not be designated for a part of its change in fair value that results from only a portion of the

time period during which the hedging instrument remains outstanding.

6.2.5 An entity may view in combination, and jointly designate as the hedging instrument, any combination of

the following (including those circumstances in which the risk or risks arising from some hedging

instruments offset those arising from others):

(a) derivatives or a proportion of them; and

(b) non-derivatives or a proportion of them.

6.2.6 However, a derivative instrument that combines a written option and a purchased option (for example,

an interest rate collar) does not qualify as a hedging instrument if it is, in effect, a net written option at

the date of designation (unless it qualifies in accordance with paragraph B6.2.4). Similarly, two or more

instruments (or proportions of them) may be jointly designated as the hedging instrument only if, in

combination, they are not, in effect, a net written option at the date of designation (unless it qualifies in

accordance with paragraph B6.2.4).

6.3 Hedged items

Qualifying items
EY INTERNAL USE ONLY

EY Q&A

6.3.1 A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a

forecast transaction or a net investment in a foreign operation. The hedged item can be:

(a) a single item; or

(b) a group of items (subject to paragraphs 6.6.1-6.6.6 and B6.6.1-B6.6.16).

A hedged item can also be a component of such an item or group of items (see paragraphs 6.3.7

and B6.3.7-B6.3.25).

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 6.3.2 The hedged item must be reliably measurable.

6.3.3 If a hedged item is a forecast transaction (or a component thereof), that transaction must be

highly probable.

6.3.4 An aggregated exposure that is a combination of an exposure that could qualify as a hedged

item in accordance with paragraph 6.3.1 and a derivative may be designated as a hedged item

(see paragraphs B6.3.3-B6.3.4). This includes a forecast transaction of an aggregated exposure

(ie uncommitted but anticipated future transactions that would give rise to an exposure and a

derivative) if that aggregated exposure is highly probable and, once it has occurred and is

therefore no longer forecast, is eligible as a hedged item.

6.3.5 For hedge accounting purposes, only assets, liabilities, firm commitments or highly probable

forecast transactions with a party external to the reporting entity can be designated as hedged

items. Hedge accounting can be applied to transactions between entities in the same group

only in the individual or separate financial statements of those entities and not in the

consolidated financial statements of the group, except for the consolidated financial

statements of an investment entity, as defined in IFRS 10, where transactions between an

investment entity and its subsidiaries measured at fair value through profit or loss will not be

eliminated in the consolidated financial statements.

EY INTERNAL USE ONLY

EY Q&A

6.3.6 However, as an exception to paragraph 6.3.5, the foreign currency risk of an intragroup monetary item

(for example, a payable/receivable between two subsidiaries) may qualify as a hedged item in the

consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses
that are not fully eliminated on consolidation in accordance with IAS 21The Effects of Changes in

Foreign Exchange Rates. In accordance with IAS 21, foreign exchange rate gains and losses on

intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item
is transacted between two group entities that have different functional currencies. In addition, the

foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item
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 in consolidated financial statements provided that the transaction is denominated in a currency other

than the functional currency of the entity entering into that transaction and the foreign currency risk will

affect consolidated profit or loss.

Designation of hedged items

6.3.7 An entity may designate an item in its entirety or a component of an item as the hedged item in a

hedging relationship. An entire item comprises all changes in the cash flows or fair value of an item. A

component comprises less than the entire fair value change or cash flow variability of an item. In that

case, an entity may designate only the following types of components (including combinations) as

hedged items:

(a) only changes in the cash flows or fair value of an item attributable to a specific risk or risks (risk

component), provided that, based on an assessment within the context of the particular market

structure, the risk component is separately identifiable and reliably measurable (see paragraphs

B6.3.8-B6.3.15). Risk components include a designation of only changes in the cash flows or the

fair value of a hedged item above or below a specified price or other variable (a one-sided risk).

(b) one or more selected contractual cash flows.

(c) components of a nominal amount, ie a specified part of the amount of an item (see paragraphs

B6.3.16-B6.3.20).

6.4 Qualifying criteria for hedge accounting

6.4.1 A hedging relationship qualifies for hedge accounting only if all of the following criteria are met:

(a) the hedging relationship consists only of eligible hedging instruments and eligible hedged

items.

(b) at the inception of the hedging relationship there is formal designation and documentation

of the hedging relationship and the entity's risk management objective and strategy for

undertaking the hedge. That documentation shall include identification of the hedging
instrument, the hedged item, the nature of the risk being hedged and how the entity will

assess whether the hedging relationship meets the hedge effectiveness requirements

(including its analysis of the sources of hedge ineffectiveness and how it determines the
hedge ratio).
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 (c) the hedging relationship meets all of the following hedge effectiveness requirements:

(i) there is an economic relationship between the hedged item and the hedging

instrument (see paragraphs B6.4.4-B6.4.6);

(ii) the effect of credit risk does not dominate the value changes that result from that

economic relationship (see paragraphs B6.4.7-B6.4.8); and

(iii) the hedge ratio of the hedging relationship is the same as that resulting from the

quantity of the hedged item that the entity actually hedges and the quantity of the

hedging instrument that the entity actually uses to hedge that quantity of hedged

item. However, that designation shall not reflect an imbalance between the

weightings of the hedged item and the hedging instrument that would create hedge

ineffectiveness (irrespective of whether recognised or not) that could result in an

accounting outcome that would be inconsistent with the purpose of hedge

accounting (see paragraphs B6.4.9-B6.4.11).

6.5 Accounting for qualifying hedging relationships

6.5.1 An entity applies hedge accounting to hedging relationships that meet the qualifying criteria in

paragraph 6.4.1 (which include the entity's decision to designate the hedging relationship).

6.5.2 There are three types of hedging relationships:

(a) fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or

liability or an unrecognised firm commitment, or a component of any such item, that is

attributable to a particular risk and could affect profit or loss.

(b) cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to

a particular risk associated with all, or a component of, a recognised asset or liability

(such as all or some future interest payments on variable-rate debt) or a highly probable
forecast transaction, and could affect profit or loss.

(c) hedge of a net investment in a foreign operation as defined in IAS 21.

6.5.3 If the hedged item is an equity instrument for which an entity has elected to present changes in fair

value in other comprehensive income in accordance with paragraph 5.7.5, the hedged exposure

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 referred to in paragraph 6.5.2(a) must be one that could affect other comprehensive income. In that

case, and only in that case, the recognised hedge ineffectiveness is presented in other comprehensive

income.

6.5.4 A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or

a cash flow hedge.

6.5.5 If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the

hedge ratio (see paragraph 6.4.1(c)(iii)) but the risk management objective for that designated

hedging relationship remains the same, an entity shall adjust the hedge ratio of the hedging

relationship so that it meets the qualifying criteria again (this is referred to in this Standard as

'rebalancing'—see paragraphs B6.5.7-B6.5.21).

6.5.6 An entity shall discontinue hedge accounting prospectively only when the hedging relationship

(or a part of a hedging relationship) ceases to meet the qualifying criteria (after taking into

account any rebalancing of the hedging relationship, if applicable). This includes instances

when the hedging instrument expires or is sold, terminated or exercised. For this purpose, the

replacement or rollover of a hedging instrument into another hedging instrument is not an

expiration or termination if such a replacement or rollover is part of, and consistent with, the
entity's documented risk management objective. Additionally, for this purpose there is not an

expiration or termination of the hedging instrument if:

(a) as a consequence of laws or regulations or the introduction of laws or regulations, the

parties to the hedging instrument agree that one or more clearing counterparties replace

their original counterparty to become the new counterparty to each of the parties. For this
purpose, a clearing counterparty is a central counterparty (sometimes called a 'clearing

organisation' or 'clearing agency') or an entity or entities, for example, a clearing member

of a clearing organisation or a client of a clearing member of a clearing organisation, that

are acting as a counterparty in order to effect clearing by a central counterparty. However,

when the parties to the hedging instrument replace their original counterparties with

different counterparties the requirement in this subparagraph is met only if each of those

parties effects clearing with the same central counterparty.

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 (b) other changes, if any, to the hedging instrument are limited to those that are necessary to

effect such a replacement of the counterparty. Such changes are limited to those that are

consistent with the terms that would be expected if the hedging instrument were originally

cleared with the clearing counterparty. These changes include changes in the collateral

requirements, rights to offset receivables and payables balances, and charges levied.

Discontinuing hedge accounting can either affect a hedging relationship in its entirety or only a

part of it (in which case hedge accounting continues for the remainder of the hedging

relationship).

6.5.7 An entity shall apply:

(a) paragraph 6.5.10 when it discontinues hedge accounting for a fair value hedge for which the

hedged item is (or is a component of) a financial instrument measured at amortised cost; and

(b) paragraph 6.5.12 when it discontinues hedge accounting for cash flow hedges.

Fair value hedges

6.5.8 As long as a fair value hedge meets the qualifying criteria in paragraph 6.4.1, the hedging

relationship shall be accounted for as follows:

(a) the gain or loss on the hedging instrument shall be recognised in profit or loss (or other

comprehensive income, if the hedging instrument hedges an equity instrument for which

an entity has elected to present changes in fair value in other comprehensive income in

accordance with paragraph 5.7.5).

(b) the hedging gain or loss on the hedged item shall adjust the carrying amount of the hedged

item (if applicable) and be recognised in profit or loss. If the hedged item is a financial

asset (or a component thereof) that is measured at fair value through other

comprehensive income in accordance with paragraph 4.1.2A, the hedging gain or loss on

the hedged item shall be recognised in profit or loss. However, if the hedged item is an

equity instrument for which an entity has elected to present changes in fair value in other
comprehensive income in accordance with paragraph 5.7.5, those amounts shall remain in

other comprehensive income. When a hedged item is an unrecognised firm commitment

(or a component thereof), the cumulative change in the fair value of the hedged item

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 subsequent to its designation is recognised as an asset or a liability with a corresponding

gain or loss recognised in profit or loss.

6.5.9 When a hedged item in a fair value hedge is a firm commitment (or a component thereof) to acquire an

asset or assume a liability, the initial carrying amount of the asset or the liability that results from the

entity meeting the firm commitment is adjusted to include the cumulative change in the fair value of the

hedged item that was recognised in the statement of financial position.

6.5.10 Any adjustment arising from paragraph 6.5.8(b) shall be amortised to profit or loss if the hedged item

is a financial instrument (or a component thereof) measured at amortised cost. Amortisation may

begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to

be adjusted for hedging gains and losses. The amortisation is based on a recalculated effective

interest rate at the date that amortisation begins. In the case of a financial asset (or a component

thereof) that is a hedged item and that is measured at fair value through other comprehensive income
in accordance with paragraph 4.1.2A, amortisation applies in the same manner but to the amount that

represents the cumulative gain or loss previously recognised in accordance with paragraph 6.5.8(b)

instead of by adjusting the carrying amount.

Cash flow hedges

EY INTERNAL USE ONLY

EY Q&A

6.5.11 As long as a cash flow hedge meets the qualifying criteria in paragraph 6.4.1, the hedging

relationship shall be accounted for as follows:

(a) the separate component of equity associated with the hedged item (cash flow hedge

reserve) is adjusted to the lower of the following (in absolute amounts):

(i) the cumulative gain or loss on the hedging instrument from inception of the hedge;

and

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 (ii) the cumulative change in fair value (present value) of the hedged item (ie the present

value of the cumulative change in the hedged expected future cash flows) from

inception of the hedge.

(b) the portion of the gain or loss on the hedging instrument that is determined to be an

effective hedge (ie the portion that is offset by the change in the cash flow hedge reserve

calculated in accordance with (a)) shall be recognised in other comprehensive income.

(c) any remaining gain or loss on the hedging instrument (or any gain or loss required to

balance the change in the cash flow hedge reserve calculated in accordance with (a)) is

hedge ineffectiveness that shall be recognised in profit or loss.

(d) the amount that has been accumulated in the cash flow hedge reserve in accordance with

(a) shall be accounted for as follows:

(i) if a hedged forecast transaction subsequently results in the recognition of a non-

financial asset or non-financial liability, or a hedged forecast transaction for a non-

financial asset or a non-financial liability becomes a firm commitment for which fair

value hedge accounting is applied, the entity shall remove that amount from the

cash flow hedge reserve and include it directly in the initial cost or other carrying

amount of the asset or the liability. This is not a reclassification adjustment (see IAS
1) and hence it does not affect other comprehensive income.

(ii) for cash flow hedges other than those covered by (i), that amount shall be

reclassified from the cash flow hedge reserve to profit or loss as a reclassification

adjustment (see IAS 1) in the same period or periods during which the hedged
expected future cash flows affect profit or loss (for example, in the periods that

interest income or interest expense is recognised or when a forecast sale occurs).

(iii) however, if that amount is a loss and an entity expects that all or a portion of that

loss will not be recovered in one or more future periods, it shall immediately

reclassify the amount that is not expected to be recovered into profit or loss as a
reclassification adjustment (see IAS 1).

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 6.5.12 When an entity discontinues hedge accounting for a cash flow hedge (see paragraphs 6.5.6 and

6.5.7(b)) it shall account for the amount that has been accumulated in the cash flow hedge reserve in

accordance with paragraph 6.5.11(a) as follows:

(a) if the hedged future cash flows are still expected to occur, that amount shall remain in the cash

flow hedge reserve until the future cash flows occur or until paragraph 6.5.11(d)(iii) applies. When

the future cash flows occur, paragraph 6.5.11(d) applies.

(b) if the hedged future cash flows are no longer expected to occur, that amount shall be immediately

reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment

(see IAS 1). A hedged future cash flow that is no longer highly probable to occur may still be

expected to occur.

Hedges of a net investment in a foreign operation

EY INTERNAL USE ONLY

EY Q&A

6.5.13 Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is

accounted for as part of the net investment (see IAS 21), shall be accounted for similarly to

cash flow hedges:

(a) the portion of the gain or loss on the hedging instrument that is determined to be an

effective hedge shall be recognised in other comprehensive income (see paragraph

6.5.11); and

(b) the ineffective portion shall be recognised in profit or loss.

6.5.14 The cumulative gain or loss on the hedging instrument relating to the effective portion of the

hedge that has been accumulated in the foreign currency translation reserve shall be

reclassified from equity to profit or loss as a reclassification adjustment (see IAS 1) in

accordance with paragraphs 48-49 of IAS 21 on the disposal or partial disposal of the foreign

operation.

Accounting for the time value of options

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 6.5.15 When an entity separates the intrinsic value and time value of an option contract and designates as

the hedging instrument only the change in intrinsic value of the option (see paragraph 6.2.4(a)), it

shall account for the time value of the option as follows (see paragraphs B6.5.29-B6.5.33):

(a) an entity shall distinguish the time value of options by the type of hedged item that the option

hedges (see paragraph B6.5.29):

(i) a transaction related hedged item; or

(ii) a time-period related hedged item.

(b) the change in fair value of the time value of an option that hedges a transaction related hedged

item shall be recognised in other comprehensive income to the extent that it relates to the hedged

item and shall be accumulated in a separate component of equity. The cumulative change in fair

value arising from the time value of the option that has been accumulated in a separate

component of equity (the 'amount') shall be accounted for as follows:

(i) if the hedged item subsequently results in the recognition of a non-financial asset or a non-

financial liability, or a firm commitment for a non-financial asset or a non-financial liability

for which fair value hedge accounting is applied, the entity shall remove the amount from

the separate component of equity and include it directly in the initial cost or other carrying

amount of the asset or the liability. This is not a reclassification adjustment (see IAS 1) and

hence does not affect other comprehensive income.

(ii) for hedging relationships other than those covered by (i), the amount shall be reclassified

from the separate component of equity to profit or loss as a reclassification adjustment (see

IAS 1) in the same period or periods during which the hedged expected future cash flows
affect profit or loss (for example, when a forecast sale occurs).

(iii) however, if all or a portion of that amount is not expected to be recovered in one or more

future periods, the amount that is not expected to be recovered shall be immediately

reclassified into profit or loss as a reclassification adjustment (see IAS 1).

(c) the change in fair value of the time value of an option that hedges a time-period related hedged

item shall be recognised in other comprehensive income to the extent that it relates to the hedged

item and shall be accumulated in a separate component of equity. The time value at the date of

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 designation of the option as a hedging instrument, to the extent that it relates to the hedged item,

shall be amortised on a systematic and rational basis over the period during which the hedge

adjustment for the option's intrinsic value could affect profit or loss (or other comprehensive

income, if the hedged item is an equity instrument for which an entity has elected to present

changes in fair value in other comprehensive income in accordance with paragraph 5.7.5).

Hence, in each reporting period, the amortisation amount shall be reclassified from the separate
component of equity to profit or loss as a reclassification adjustment (see IAS 1). However, if

hedge accounting is discontinued for the hedging relationship that includes the change in intrinsic

value of the option as the hedging instrument, the net amount (ie including cumulative

amortisation) that has been accumulated in the separate component of equity shall be

immediately reclassified into profit or loss as a reclassification adjustment (see IAS 1).

Accounting for the forward element of forward contracts and foreign

currency basis spreads of financial instruments
6.5.16 When an entity separates the forward element and the spot element of a forward contract and

designates as the hedging instrument only the change in the value of the spot element of the forward

contract, or when an entity separates the foreign currency basis spread from a financial instrument

and excludes it from the designation of that financial instrument as the hedging instrument (see

paragraph 6.2.4(b)), the entity may apply paragraph 6.5.15 to the forward element of the forward

contract or to the foreign currency basis spread in the same manner as it is applied to the time value
of an option. In that case, the entity shall apply the application guidance in paragraphs B6.5.34-

B6.5.39.

6.6 Hedges of a group of items

Eligibility of a group of items as the hedged item
6.6.1 A group of items (including a group of items that constitute a net position; see paragraphs

B6.6.1-B6.6.8) is an eligible hedged item only if:

(a) it consists of items (including components of items) that are, individually, eligible hedged

items;

(b) the items in the group are managed together on a group basis for risk management

purposes; and

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 (c) in the case of a cash flow hedge of a group of items whose variabilities in cash flows are

not expected to be approximately proportional to the overall variability in cash flows of the

group so that offsetting risk positions arise:

(i) it is a hedge of foreign currency risk; and

(ii) the designation of that net position specifies the reporting period in which the

forecast transactions are expected to affect profit or loss, as well as their nature and

volume (see paragraphs B6.6.7-B6.6.8).

Designation of a component of a nominal amount

6.6.2 A component that is a proportion of an eligible group of items is an eligible hedged item provided that

designation is consistent with the entity's risk management objective.

6.6.3 A layer component of an overall group of items (for example, a bottom layer) is eligible for hedge

accounting only if:

(a) it is separately identifiable and reliably measurable;

(b) the risk management objective is to hedge a layer component;

(c) the items in the overall group from which the layer is identified are exposed to the same hedged

risk (so that the measurement of the hedged layer is not significantly affected by which particular

items from the overall group form part of the hedged layer);

(d) for a hedge of existing items (for example, an unrecognised firm commitment or a recognised

asset) an entity can identify and track the overall group of items from which the hedged layer is

defined (so that the entity is able to comply with the requirements for the accounting for qualifying

hedging relationships); and

(e) any items in the group that contain prepayment options meet the requirements for components of

a nominal amount (see paragraph B6.3.20).

Presentation
6.6.4 For a hedge of a group of items with offsetting risk positions (ie in a hedge of a net position) whose

hedged risk affects different line items in the statement of profit or loss and other comprehensive

income, any hedging gains or losses in that statement shall be presented in a separate line from those

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 affected by the hedged items. Hence, in that statement the amount in the line item that relates to the

hedged item itself (for example, revenue or cost of sales) remains unaffected.

6.6.5 For assets and liabilities that are hedged together as a group in a fair value hedge, the gain or loss in

the statement of financial position on the individual assets and liabilities shall be recognised as an

adjustment of the carrying amount of the respective individual items comprising the group in

accordance with paragraph 6.5.8(b).

Nil net positions

6.6.6 When the hedged item is a group that is a nil net position (ie the hedged items among themselves fully

offset the risk that is managed on a group basis), an entity is permitted to designate it in a hedging

relationship that does not include a hedging instrument, provided that:

(a) the hedge is part of a rolling net risk hedging strategy, whereby the entity routinely hedges new

positions of the same type as time moves on (for example, when transactions move into the time

horizon for which the entity hedges);

(b) the hedged net position changes in size over the life of the rolling net risk hedging strategy and the

entity uses eligible hedging instruments to hedge the net risk (ie when the net position is not nil);

(c) hedge accounting is normally applied to such net positions when the net position is not nil and it is

hedged with eligible hedging instruments; and

(d) not applying hedge accounting to the nil net position would give rise to inconsistent accounting

outcomes, because the accounting would not recognise the offsetting risk positions that would

otherwise be recognised in a hedge of a net position.

6.7 Option to designate a credit exposure as measured at

fair value through profit or loss
Eligibility of credit exposures for designation at fair value through
profit or loss
6.7.1 If an entity uses a credit derivative that is measured at fair value through profit or loss to manage

the credit risk of all, or a part of, a financial instrument (credit exposure) it may designate that

financial instrument to the extent that it is so managed (ie all or a proportion of it) as measured
at fair value through profit or loss if:

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 (a) the name of the credit exposure (for example, the borrower, or the holder of a loan

commitment) matches the reference entity of the credit derivative ('name matching'); and

(b) the seniority of the financial instrument matches that of the instruments that can be

delivered in accordance with the credit derivative.

An entity may make this designation irrespective of whether the financial instrument that is

managed for credit risk is within the scope of this Standard (for example, an entity may designate

loan commitments that are outside the scope of this Standard). The entity may designate that

financial instrument at, or subsequent to, initial recognition, or while it is unrecognised. The entity

shall document the designation concurrently.

Accounting for credit exposures designated at fair value through

profit or loss
6.7.2 If a financial instrument is designated in accordance with paragraph 6.7.1 as measured at fair value

through profit or loss after its initial recognition, or was previously not recognised, the difference at the

time of designation between the carrying amount, if any, and the fair value shall immediately be

recognised in profit or loss. For financial assets measured at fair value through other comprehensive

income in accordance with paragraph 4.1.2A, the cumulative gain or loss previously recognised in

other comprehensive income shall immediately be reclassified from equity to profit or loss as a
reclassification adjustment (see IAS 1).

6.7.3 An entity shall discontinue measuring the financial instrument that gave rise to the credit risk, or a

proportion of that financial instrument, at fair value through profit or loss if:

(a) the qualifying criteria in paragraph 6.7.1 are no longer met, for example:

(i) the credit derivative or the related financial instrument that gives rise to the credit risk

expires or is sold, terminated or settled; or

(ii) the credit risk of the financial instrument is no longer managed using credit derivatives. For

example, this could occur because of improvements in the credit quality of the borrower or

the loan commitment holder or changes to capital requirements imposed on an entity; and

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 (b) the financial instrument that gives rise to the credit risk is not otherwise required to be measured at

fair value through profit or loss (ie the entity's business model has not changed in the meantime

so that a reclassification in accordance with paragraph 4.4.1 was required).

6.7.4 When an entity discontinues measuring the financial instrument that gives rise to the credit risk, or a

proportion of that financial instrument, at fair value through profit or loss, that financial instrument's fair

value at the date of discontinuation becomes its new carrying amount. Subsequently, the same

measurement that was used before designating the financial instrument at fair value through profit or

loss shall be applied (including amortisation that results from the new carrying amount). For example, a

financial asset that had originally been classified as measured at amortised cost would revert to that
measurement and its effective interest rate would be recalculated based on its new gross carrying

amount on the date of discontinuing measurement at fair value through profit or loss.

Chapter 7 Effective date and transition

7.1 Effective date
7.1.1 An entity shall apply this Standard for annual periods beginning on or after 1 January 2018. Earlier

application is permitted. If an entity elects to apply this Standard early, it must disclose that fact and

apply all of the requirements in this Standard at the same time (but see also paragraphs 7.1.2, 7.2.21

and 7.3.2). It shall also, at the same time, apply the amendments in Appendix C.

7.1.2 Despite the requirements in paragraph 7.1.1, for annual periods beginning before 1 January 2018, an

entity may elect to early apply only the requirements for the presentation of gains and losses on

financial liabilities designated as at fair value through profit or loss in paragraphs 5.7.1(c), 5.7.7-5.7.9,
7.2.14 and B5.7.5-B5.7.20 without applying the other requirements in this Standard. If an entity elects

to apply only those paragraphs, it shall disclose that fact and provide on an ongoing basis the related

disclosures set out in paragraphs 10-11 of IFRS 7 Financial Instruments: Disclosures (as amended by
IFRS 9 (2010)). (See also paragraphs 7.2.2 and 7.2.15.)

7.1.3 Annual Improvements to IFRSs 2010-2012 Cycle, issued in December 2013, amended paragraphs

4.2.1 and 5.7.5 as a consequential amendment derived from the amendment to IFRS 3. An entity shall

apply that amendment prospectively to business combinations to which the amendment to IFRS 3
applies.

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 7.1.4 IFRS 15, issued in May 2014, amended paragraphs 3.1.1, 4.2.1, 5.1.1, 5.2.1, 5.7.6, B3.2.13, B5.7.1, C5

and C42 and deleted paragraph C16 and its related heading. Paragraphs 5.1.3 and 5.7.1A, and a

definition to Appendix A, were added. An entity shall apply those amendments when it applies IFRS

15.

7.1.5 IFRS 16, issued in January 2016, amended paragraphs 2.1, 5.5.15, B4.3.8, B5.5.34 and B5.5.46. An

entity shall apply those amendments when it applies IFRS 16.

7.1.6 [This paragraph refers to amendments that are not yet effective, and is therefore not included in this

edition.]

7.1.7 Prepayment Features with Negative Compensation (Amendments to IFRS 9), issued in October 2017,

added paragraphs 7.2.29–7.2.34 and B4.1.12A and amended paragraphs B4.1.11(b) and B4.1.12(b).

An entity shall apply these amendments for annual periods beginning on or after 1 January 2019.

Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall

disclose that fact.

7.2 Transition
7.2.1 An entity shall apply this Standard retrospectively, in accordance with IAS 8Accounting Policies,

Changes in Accounting Estimates and Errors, except as specified in paragraphs 7.2.4-7.2.26 and

7.2.28. This Standard shall not be applied to items that have already been derecognised at the date of

initial application.

7.2.2 For the purposes of the transition provisions in paragraphs 7.2.1, 7.2.3-7.2.28 and 7.3.2, the date of

initial application is the date when an entity first applies those requirements of this Standard and must

be the beginning of a reporting period after the issue of this Standard. Depending on the entity's

chosen approach to applying IFRS 9, the transition can involve one or more than one date of initial

application for different requirements.

Transition for classification and measurement (Chapters 4 and 5)

7.2.3 At the date of initial application, an entity shall assess whether a financial asset meets the condition in

paragraphs 4.1.2(a) or 4.1.2A(a) on the basis of the facts and circumstances that exist at that date.

The resulting classification shall be applied retrospectively irrespective of the entity's business model in
prior reporting periods.

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 7.2.4 If, at the date of initial application, it is impracticable (as defined in IAS 8) for an entity to assess a

modified time value of money element in accordance with paragraphs B4.1.9B-B4.1.9D on the basis of

the facts and circumstances that existed at the initial recognition of the financial asset, an entity shall

assess the contractual cash flow characteristics of that financial asset on the basis of the facts and

circumstances that existed at the initial recognition of the financial asset without taking into account the

requirements related to the modification of the time value of money element in paragraphs B4.1.9B-
B4.1.9D. (See also paragraph 42R of IFRS 7.)

7.2.5 If, at the date of initial application, it is impracticable (as defined in IAS 8) for an entity to assess whether

the fair value of a prepayment feature was insignificant in accordance with paragraph B4.1.12(c) on the

basis of the facts and circumstances that existed at the initial recognition of the financial asset, an

entity shall assess the contractual cash flow characteristics of that financial asset on the basis of the

facts and circumstances that existed at the initial recognition of the financial asset without taking into

account the exception for prepayment features in paragraph B4.1.12. (See also paragraph 42S of
IFRS 7.)

7.2.6 If an entity measures a hybrid contract at fair value in accordance with paragraphs 4.1.2A, 4.1.4 or 4.1.5

but the fair value of the hybrid contract had not been measured in comparative reporting periods, the

fair value of the hybrid contract in the comparative reporting periods shall be the sum of the fair values

of the components (ie the non-derivative host and the embedded derivative) at the end of each

comparative reporting period if the entity restates prior periods (see paragraph 7.2.15).

7.2.7 If an entity has applied paragraph 7.2.6 then at the date of initial application the entity shall recognise

any difference between the fair value of the entire hybrid contract at the date of initial application and

the sum of the fair values of the components of the hybrid contract at the date of initial application in
the opening retained earnings (or other component of equity, as appropriate) of the reporting period

that includes the date of initial application.

7.2.8 At the date of initial application an entity may designate:

(a) a financial asset as measured at fair value through profit or loss in accordance with paragraph

4.1.5; or

(b) an investment in an equity instrument as at fair value through other comprehensive income in

accordance with paragraph 5.7.5.

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 Such a designation shall be made on the basis of the facts and circumstances that exist at the date of

initial application. That classification shall be applied retrospectively.

7.2.9 At the date of initial application an entity:

(a) shall revoke its previous designation of a financial asset as measured at fair value through profit or

loss if that financial asset does not meet the condition in paragraph 4.1.5.

(b) may revoke its previous designation of a financial asset as measured at fair value through profit or

loss if that financial asset meets the condition in paragraph 4.1.5.

Such a revocation shall be made on the basis of the facts and circumstances that exist at the date of

initial application. That classification shall be applied retrospectively.

7.2.10 At the date of initial application, an entity:

(a) may designate a financial liability as measured at fair value through profit or loss in accordance

with paragraph 4.2.2(a).

(b) shall revoke its previous designation of a financial liability as measured at fair value through profit

or loss if such designation was made at initial recognition in accordance with the condition now in

paragraph 4.2.2(a) and such designation does not satisfy that condition at the date of initial

application.

(c) may revoke its previous designation of a financial liability as measured at fair value through profit

or loss if such designation was made at initial recognition in accordance with the condition now in

paragraph 4.2.2(a) and such designation satisfies that condition at the date of initial application.

Such a designation and revocation shall be made on the basis of the facts and circumstances that exist at

the date of initial application. That classification shall be applied retrospectively.

7.2.11 If it is impracticable (as defined in IAS 8) for an entity to apply retrospectively the effective interest

method, the entity shall treat:

(a) the fair value of the financial asset or the financial liability at the end of each comparative period

presented as the gross carrying amount of that financial asset or the amortised cost of that

financial liability if the entity restates prior periods; and

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 (b) the fair value of the financial asset or the financial liability at the date of initial application as the

new gross carrying amount of that financial asset or the new amortised cost of that financial

liability at the date of initial application of this Standard.

7.2.12 If an entity previously accounted at cost (in accordance with IAS 39), for an investment in an equity

instrument that does not have a quoted price in an active market for an identical instrument (ie a

Level 1 input) (or for a derivative asset that is linked to and must be settled by delivery of such an

equity instrument) it shall measure that instrument at fair value at the date of initial application. Any

difference between the previous carrying amount and the fair value shall be recognised in the opening

retained earnings (or other component of equity, as appropriate) of the reporting period that includes
the date of initial application.

7.2.13 If an entity previously accounted for a derivative liability that is linked to, and must be settled by,

delivery of an equity instrument that does not have a quoted price in an active market for an identical

instrument (ie a Level 1 input) at cost in accordance with IAS 39, it shall measure that derivative

liability at fair value at the date of initial application. Any difference between the previous carrying

amount and the fair value shall be recognised in the opening retained earnings of the reporting period

that includes the date of initial application.

7.2.14 At the date of initial application, an entity shall determine whether the treatment in paragraph 5.7.7

would create or enlarge an accounting mismatch in profit or loss on the basis of the facts and

circumstances that exist at the date of initial application. This Standard shall be applied

retrospectively on the basis of that determination.

7.2.14A At the date of initial application, an entity is permitted to make the designation in paragraph 2.5 for

contracts that already exist on the date but only if it designates all similar contracts. The change in the

net assets resulting from such designations shall be recognised in retained earnings at the date of
initial application.

EY INTERNAL USE ONLY

EY Q&A

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 7.2.15 Despite the requirement in paragraph 7.2.1, an entity that adopts the classification and measurement

requirements of this Standard (which include the requirements related to amortised cost

measurement for financial assets and impairment in Sections 5.4 and 5.5) shall provide the

disclosures set out in paragraphs 42L-42O of IFRS 7 but need not restate prior periods. The entity

may restate prior periods if, and only if, it is possible without the use of hindsight. If an entity does not

restate prior periods, the entity shall recognise any difference between the previous carrying amount
and the carrying amount at the beginning of the annual reporting period that includes the date of initial

application in the opening retained earnings (or other component of equity, as appropriate) of the

annual reporting period that includes the date of initial application. However, if an entity restates prior

periods, the restated financial statements must reflect all of the requirements in this Standard. If an

entity's chosen approach to applying IFRS 9 results in more than one date of initial application for

different requirements, this paragraph applies at each date of initial application (see paragraph 7.2.2).

This would be the case, for example, if an entity elects to early apply only the requirements for the

presentation of gains and losses on financial liabilities designated as at fair value through profit or

loss in accordance with paragraph 7.1.2 before applying the other requirements in this Standard.

7.2.16 If an entity prepares interim financial reports in accordance with IAS 34Interim Financial Reporting the

entity need not apply the requirements in this Standard to interim periods prior to the date of initial

application if it is impracticable (as defined in IAS 8).

Impairment (Section 5.5)
7.2.17 An entity shall apply the impairment requirements in Section 5.5 retrospectively in accordance with

IAS 8 subject to paragraphs 7.2.15 and 7.2.18-7.2.20.

7.2.18 At the date of initial application, an entity shall use reasonable and supportable information that is

available without undue cost or effort to determine the credit risk at the date that a financial instrument

was initially recognised (or for loan commitments and financial guarantee contracts at the date that
the entity became a party to the irrevocable commitment in accordance with paragraph 5.5.6) and

compare that to the credit risk at the date of initial application of this Standard.

7.2.19 When determining whether there has been a significant increase in credit risk since initial recognition,

an entity may apply:

(a) the requirements in paragraphs 5.5.10 and B5.5.22-B5.5.24; and

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 (b) the rebuttable presumption in paragraph 5.5.11 for contractual payments that are more than 30

days past due if an entity will apply the impairment requirements by identifying significant

increases in credit risk since initial recognition for those financial instruments on the basis of past

due information.

7.2.20 If, at the date of initial application, determining whether there has been a significant increase in credit

risk since initial recognition would require undue cost or effort, an entity shall recognise a loss

allowance at an amount equal to lifetime expected credit losses at each reporting date until that

financial instrument is derecognised (unless that financial instrument is low credit risk at a reporting

date, in which case paragraph 7.2.19(a) applies).

Transition for hedge accounting (Chapter 6)

7.2.21 When an entity first applies this Standard, it may choose as its accounting policy to continue to apply

the hedge accounting requirements of IAS 39 instead of the requirements in Chapter 6 of this

Standard. An entity shall apply that policy to all of its hedging relationships. An entity that chooses

that policy shall also apply IFRIC 16Hedges of a Net Investment in a Foreign Operation without the

amendments that conform that Interpretation to the requirements in Chapter 6 of this Standard.

7.2.22 Except as provided in paragraph 7.2.26, an entity shall apply the hedge accounting requirements of

this Standard prospectively.

7.2.23 To apply hedge accounting from the date of initial application of the hedge accounting requirements of

this Standard, all qualifying criteria must be met as at that date.

7.2.24 Hedging relationships that qualified for hedge accounting in accordance with IAS 39 that also qualify

for hedge accounting in accordance with the criteria of this Standard (see paragraph 6.4.1), after

taking into account any rebalancing of the hedging relationship on transition (see paragraph

7.2.25(b)), shall be regarded as continuing hedging relationships.

7.2.25 On initial application of the hedge accounting requirements of this Standard, an entity:

(a) may start to apply those requirements from the same point in time as it ceases to apply the hedge

accounting requirements of IAS 39; and

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 (b) shall consider the hedge ratio in accordance with IAS 39 as the starting point for rebalancing the

hedge ratio of a continuing hedging relationship, if applicable. Any gain or loss from such a

rebalancing shall be recognised in profit or loss.

EY INTERNAL USE ONLY

EY Q&A

7.2.26 As an exception to prospective application of the hedge accounting requirements of this Standard, an

entity:

(a) shall apply the accounting for the time value of options in accordance with paragraph 6.5.15

retrospectively if, in accordance with IAS 39, only the change in an option's intrinsic value was

designated as a hedging instrument in a hedging relationship. This retrospective application

applies only to those hedging relationships that existed at the beginning of the earliest

comparative period or were designated thereafter.

(b) may apply the accounting for the forward element of forward contracts in accordance with

paragraph 6.5.16 retrospectively if, in accordance with IAS 39, only the change in the spot

element of a forward contract was designated as a hedging instrument in a hedging relationship.

This retrospective application applies only to those hedging relationships that existed at the

beginning of the earliest comparative period or were designated thereafter. In addition, if an entity
elects retrospective application of this accounting, it shall be applied to all hedging relationships
that qualify for this election (ie on transition this election is not available on a hedging-

relationship-by-hedging-relationship basis). The accounting for foreign currency basis spreads

(see paragraph 6.5.16) may be applied retrospectively for those hedging relationships that

existed at the beginning of the earliest comparative period or were designated thereafter.

(c) shall apply retrospectively the requirement of paragraph 6.5.6 that there is not an expiration or

termination of the hedging instrument if:

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 (i) as a consequence of laws or regulations, or the introduction of laws or regulations, the

parties to the hedging instrument agree that one or more clearing counterparties replace

their original counterparty to become the new counterparty to each of the parties; and

(ii) other changes, if any, to the hedging instrument are limited to those that are necessary to

effect such a replacement of the counterparty.

Entities that have applied IFRS 9 (2009), IFRS 9 (2010) or IFRS 9

(2013) early
7.2.27 An entity shall apply the transition requirements in paragraphs 7.2.1-7.2.26 at the relevant date of

initial application. An entity shall apply each of the transition provisions in paragraphs 7.2.3-7.2.14A

and 7.2.17-7.2.26 only once (ie if an entity chooses an approach of applying IFRS 9 that involves
more than one date of initial application, it cannot apply any of those provisions again if they were

already applied at an earlier date). (See paragraphs 7.2.2 and 7.3.2.)

7.2.28 An entity that applied IFRS 9 (2009), IFRS 9 (2010) or IFRS 9 (2013) and subsequently applies this

Standard:

(a) shall revoke its previous designation of a financial asset as measured at fair value through profit or

loss if that designation was previously made in accordance with the condition in paragraph 4.1.5

but that condition is no longer satisfied as a result of the application of this Standard;

(b) may designate a financial asset as measured at fair value through profit or loss if that designation

would not have previously satisfied the condition in paragraph 4.1.5 but that condition is now

satisfied as a result of the application of this Standard;

(c) shall revoke its previous designation of a financial liability as measured at fair value through profit

or loss if that designation was previously made in accordance with the condition in paragraph

4.2.2(a) but that condition is no longer satisfied as a result of the application of this Standard; and

(d) may designate a financial liability as measured at fair value through profit or loss if that designation

would not have previously satisfied the condition in paragraph 4.2.2(a) but that condition is now

satisfied as a result of the application of this Standard.

Such a designation and revocation shall be made on the basis of the facts and circumstances that exist at

the date of initial application of this Standard. That classification shall be applied retrospectively.

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 Transition for Prepayment Features with Negative Compensation
7.2.29 An entity shall apply Prepayment Features with Negative Compensation (Amendments to IFRS 9)

retrospectively in accordance with IAS 8, except as specified in paragraphs 7.2.30–7.2.34.

7.2.30 An entity that first applies these amendments at the same time it first applies this Standard shall apply

paragraphs 7.2.1–7.2.28 instead of paragraphs 7.2.31–7.2.34.

7.2.31 An entity that first applies these amendments after it first applies this Standard shall apply paragraphs

7.2.32–7.2.34. The entity shall also apply the other transition requirements in this Standard necessary

for applying these amendments. For that purpose, references to the date of initial application shall be

read as referring to the beginning of the reporting period in which an entity first applies these

amendments (date of initial application of these amendments).

7.2.32 With regard to designating a financial asset or financial liability as measured at fair value through profit

or loss, an entity:

(a) shall revoke its previous designation of a financial asset as measured at fair value through profit or loss

if that designation was previously made in accordance with the condition in paragraph 4.1.5 but that

condition is no longer satisfied as a result of the application of these amendments;

(b) may designate a financial asset as measured at fair value through profit or loss if that designation would

not have previously satisfied the condition in paragraph 4.1.5 but that condition is now satisfied as a result

of the application of these amendments;

(c) shall revoke its previous designation of a financial liability as measured at fair value through profit or loss

if that designation was previously made in accordance with the condition in paragraph 4.2.2(a) but that

condition is no longer satisfied as a result of the application of these amendments; and

(d) may designate a financial liability as measured at fair value through profit or loss if that designation

would not have previously satisfied the condition in paragraph 4.2.2(a) but that condition is now satisfied as

a result of the application of these amendments.

Such a designation and revocation shall be made on the basis of the facts and circumstances that exist at the

date of initial application of these amendments. That classification shall be applied retrospectively.
7.2.33 An entity is not required to restate prior periods to reflect the application of these amendments. The

entity may restate prior periods if, and only if, it is possible without the use of hindsight and the

restated financial statements reflect all the requirements in this Standard. If an entity does not restate

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 prior periods, the entity shall recognise any difference between the previous carrying amount and the

carrying amount at the beginning of the annual reporting period that includes the date of initial

application of these amendments in the opening retained earnings (or other component of equity, as

appropriate) of the annual reporting period that includes the date of initial application of these

amendments.

7.2.34 In the reporting period that includes the date of initial application of these amendments, the entity shall

disclose the following information as at that date of initial application for each class of financial assets

and financial liabilities that were affected by these amendments:

(a) the previous measurement category and carrying amount determined immediately before applying these

amendments;
(b) the new measurement category and carrying amount determined after applying these amendments;

(c) the carrying amount of any financial assets and financial liabilities in the statement of financial position

that were previously designated as measured at fair value through profit or loss but are no longer so

designated; and
(d) the reasons for any designation or de-designation of financial assets or financial liabilities as measured

at fair value through profit or loss.

7.3 Withdrawal of IFRIC 9, IFRS 9 (2009), IFRS 9 (2010)
and IFRS 9 (2013)
7.3.1 This Standard supersedes IFRIC 9Reassessment of Embedded Derivatives. The requirements added to

IFRS 9 in October 2010 incorporated the requirements previously set out in paragraphs 5 and 7 of

IFRIC 9. As a consequential amendment, IFRS 1First-time Adoption of International Financial

Reporting Standards incorporated the requirements previously set out in paragraph 8 of IFRIC 9.

7.3.2 This Standard supersedes IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013). However, for annual

periods beginning before 1 January 2018, an entity may elect to apply those earlier versions of IFRS 9

instead of applying this Standard if, and only if, the entity's relevant date of initial application is before 1
February 2015.

Footnotes

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 EY EY IFRS Q&As
Q&
IFRS 9.2.1(g)-1 - Loan commitment to an SPE
A

EY EY IFRS Q&As

Q& IFRS 9.2.6-1- The non-financial item exemption and borrowing of commodities
A
IFRS 9.2.6-2 - Commodity intermediaries

IFRS 9.2.6-3 - Scope: non-financial items - offsetting contracts

EY EY IFRS Q&As

Q& IFRS 9.2.7 - 1 - Volume flexibility in end user commodity contracts

A
IFRS 9.2.7-2 - Written options included in delivery contracts of non-financial items

EY EY IFRS Q&As
Q&
IFRS 9.4.3 - 1 - Loan that includes a performance fee
A

EY EY IFRS Q&As

Q& IFRS 9.4.3.3-1 - Inflation-linked financial liability

A
IFRS 9.4.3.3- 2- Embedded derivatives: Inflation index as a pricing adjustment feature in a non-financial

instrument contract

IFRS 9.4.3.3-3 - Embedded derivatives: Inputs, ingredients or substitutes as a pricing adjustment

feature in a non-financial instrument contract

IFRS 9.4.3.3 – 4 and IFRS 9.B4.3.5(f) - 1 - Assessment on embedded credit derivatives from the

perspective of the issuer

1 1 In accordance with paragraph 7.2.21, an entity may choose as its accounting policy to continue

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 to apply the hedge accounting requirements in IAS 39 instead of the requirements in Chapter 6 of

this Standard. If an entity has made this election, the references in this Standard to particular hedge

accounting requirements in Chapter 6 are not relevant. Instead the entity applies the relevant hedge

accounting requirements in IAS 39.

EY EY IFRS Q&As

Q& IFRS 9.5.5.3-1, IFRS 3.B41-1 and IFRS 9.5.5.5-1 – The interaction between the initial measurement of
A debt instruments acquired in a business combination and the impairment model of IFRS 9

EY EY IFRS Q&As

Q& IFRS 9.5.5.5-1, IFRS 3.B41-1 and IFRS 9.5.5.3-1 – The interaction between the initial measurement of
A debt instruments acquired in a business combination and the impairment model of IFRS 9

EY EY IFRS Q&As
Q&
IFRS 9.6.1.2 -1 – Loan designated as both a hedging instrument and a hedged item
A

EY EY IFRS Q&As
Q&
IFRS 9.6.2.3 - 1 - Hedge accounting: Intragroup foreign currency loan as a hedging instrument
A

EY EY IFRS Q&As
Q&
IFRS 9.6.2.4 - 1 - Splitting a Derivative Instrument Designated for Hedge Accounting
A

EY EY IFRS Q&As

Q& IFRS 9.6.3.1 - 1 - Lease receivable hedged for interest rate risk
A
IFRS 9.6.3.1 – 2 - Hedging variable rate debt assumed in a business combination

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 EY EY IFRS Q&As
Q&
IFRS 9.6.3.6 – 1 - Hedge accounting: internal firm commitments
A

EY EY IFRS Q&As
Q&
IFRS 9.6.5.11 – 1 - Recognition of ineffective portion of cash flow interest rate hedge in profit or loss
A

EY EY IFRS Q&As
Q&
IFRS 9.6.5.13 – 1 - Foreign currency hedges of investments in separate financial statements
A

EY EY IFRS Q&As
Q&
IFRS 9.7.2.15-1 Transition: Restatement of comparatives
A

EY EY IFRS Q&As

Q& IFRS 9.7.2.26 and IAS 39 (2018).88 - 1 – Transition: Retrospective accounting for currency basis
A spread cost of hedging

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