IFRS 9 Financial Instruments

International Financial Reporting Standard 9 (“IFRS 9”) is the accounting standard for financial instruments, which defines the classification, measurements and impairment of financial instruments. It is designed to make annual reports more meaningful to investors as well as simplify how auditors implement the rules and introduce safeguards to limit credit losses.

In July 2014, after several years of delay, the accounting regulators published the final text of IFRS 9. This combines revised versions of previously published sections with the first publication of the final and most controversial impairment section. IFRS 9 will become effective in 2018.

Through a mix of lecture and case studies, the workshop will equip participants to achieve a detailed understanding of the latest IFRS 9 standard, both for financial assets, liabilities and derivatives, including:

• The classification and measurement of financial instruments;
• The new impairment methodology based on expected losses;
• The fair value of financial liabilities and deterioration of institutions’ own credit;
• The different types of hedge accounting and the recent IFRS changes.

COURSE CONTENT

Session 1 - Introduction

• What is IFRS 9? How does it differ from IAS 39?
• What are financial assets and financial liabilities?
• IFRS 9 history and implementation overview

Session 2 – Financial Assets Classification & Measurement

• Presentation of the three different categories
  
  • Amortised Costs;
  • Fair value through Profit & Loss (FVTPL);
  • Fair value through Other Comprehensive Income (FVTOCI)
• Accounting treatment determined by (i) business model (ii) nature of cash flows
• Decision tree to decide on classification of financial instruments
• Balance sheet and P&L calculation of a bond at amortized cost
  
  • Based on the Internal Rate of Return (IRR) of future cash flows
  • Treatment of fees in the IRR calculation

• Balance sheet and P&L calculation of a bond at FVTPL and FVTOCI
  
  • Effective interest rate method for interests (same as amortised costs)
  • Unrealised gain based on NPV at current yield of future cash flows
• Reminder on determining fair value
  
  • Level 1 based on unadjusted quoted price
  • Level 2 based on quoted price in inactive markets or observable model input
  • Level 3 based on unobservable but significant inputs to the overallvalue

Case Study #1: participants will be presented with a few financial instruments and will classify them in their relevant categories

Case Study #2: participants will compute on Excel the impact on balance and P&L for different types of debt & equity instruments

Session 3 – Financial Assets Impairments

• Applies to amortized cost and FVTOCI portfolios
• Incurred losses (IAS 39) has been replaced by expected losses (IFRS 9)
• “12-month expected credit losses” vs. “life-time expected credit losses”
• Three stages process to determine impairments
• Interest income based on gross carrying amount or amortised costs
• Accounting treatment for financial instruments already impaired when acquired

Case Study #3: participants will assess a credit deterioration on a financial instrument and book an impairment based its expected future losses

Session 4 – Financial Liabilities & Own Credit

• Financial liabilities at amortised cost or FVTPL
• Own credit deterioration reduces institutions’ liabilities
• Liability reduction due to rating downgrade to be now classified in OCI

Case Study #4: participants will assess the impact on credit deterioration on institutions’ own bonds

Session 5 – Hedge Accounting

• Qualification for hedge accounting
• IFRS 9 hedge accounting more closely aligned to risk management policy
• Elimination of distinction between financial and non-financial components of hedging
• Different types of hedge accounting
  
  • Cash flow hedge and its impact on OCI
  • Fair value hedge impact depending on underlying exposure
  • Net investment hedge for foreign subsidiary

Case Study #5: participants will classify a few hedging transactions in their relevant categories

Case Study #6: participants will value an interest rate swap accounted for as a cash flow hedge

• Accountant
• Auditors
• Credit analysis
• Risk managers in banks
• Financial analysts
• Portfolio managers
• Asset managers
• Private equity
• Treasurer
• Other interested Finance professionals

Certificate of completion

Digital certificate - Included