Ifrs 9

IFRS 9 vs MFRS 139 – COMPLEXITIES TO SIMPLICITY, IS IT A FACT?

Introduction

On year 2005, MFRS 139 was introduced to prescribe unified rules for reporting of the financial instruments so that companies presented them in a transparent and a consistent way. However, it is found that the MFRS 139 is too complicated to the users to understand, interpret and apply. They prefer something that is principle-based and less complex. International Accounting Standard Board (IASB) agreed to rewrite and replace MFRS 139.

On year 2008, IASB start on an ambitious program to replace FRS 139, Financial Instruments: Recognition and Measurement with IFRS 9, Financial Instruments. This is perhaps one of the most significant projects because it actually redefines many major provisions within the already complex FRS 129 standard that include removing some of the classification of financial instruments, derecognition, hedge accounting and offsetting of financial assets and liabilities.

The objective of IFRS 9 is to establish principles for the financial reporting of financial assets and financial liabilities. An entity shall apply this IFRS for all items within the scope of IAS 39, Financial Instruments: Recognition and Measurement. This standard will be eventually introduced in three phases which are classification and measurement, impairment of financial instruments and the classification and measurement of hedge accounting.

Complexities to Simplicity, is it a fact?

One of the significant changes in IFRS 9 is the basis of initial classification. This is because one of the most common criticisms of MFRS 139 is that it is complex and has numerous categories which have their own rules and criteria for each category. For example, the basis of classification is based on the intention of the management to hold till maturity or trading for short-term profits. While IFRS 9 adopts a principle-based approach to classification and measurement by reflecting the entity’s business model and...