Ias 39 opções de fx

IAS plus.
Visão geral.
O IAS 39 Instrumentos Financeiros: Reconhecimento e Medição descreve os requisitos para o reconhecimento e mensuração de ativos financeiros, passivos financeiros e alguns contratos para comprar ou vender itens não financeiros. Os instrumentos financeiros são inicialmente reconhecidos quando uma entidade torna-se parte das provisões contratuais do instrumento e são classificadas em várias categorias, dependendo do tipo de instrumento, que então determina a mensuração subseqüente do instrumento (geralmente custo amortizado ou valor justo). Regras especiais aplicam-se a derivados embutidos e instrumentos de hedge.
O IAS 39 foi reeditado em dezembro de 2003, aplica-se aos períodos anuais com início em ou após 1 de janeiro de 2005 e será amplamente substituído pela IFRS 9 Instrumentos Financeiros para períodos anuais com início em ou após 1º de janeiro de 2018.
História da IAS 39.
* A IFRS 9 (2014) substitui a IFRS 9 (2009), IFRS 9 (2010) e IFRS 9 (2013), mas essas normas permanecem disponíveis para aplicação se a data relevante do pedido inicial for anterior a 1 de fevereiro de 2015.
# Quando uma entidade aplica pela primeira vez a IFRS 9, pode escolher como opção de política contábil para continuar a aplicar os requisitos de contabilidade de hedge da IAS 39 em vez dos requisitos do Capítulo 6 da IFRS 9. O IASB atualmente está realizando um projeto de contabilidade de hedge macro que deverá eventualmente substituir essas seções da IAS 39.
Interpretações relacionadas.
IFRIC 16 Hedge de um investimento líquido em uma operação no exterior IFRIC 12 Arranjos de concessão de serviço IFRIC 9 Reavaliação de derivativos incorporados IAS 39 (2003) substituiu SIC-33 Consolidação e método de equivalência patrimonial - Direitos de voto potenciais e participação de participação.
Alterações em consideração pelo IASB.
Resumo da IAS 39.
Diretriz da Deloitte sobre IFRSs para instrumentos financeiros.
iGAAP 2012: Instrumentos Financeiros.
A Deloitte (Reino Unido) desenvolveu o iGAAP 2012: Instrumentos Financeiros - IFRS 9 e Padrões relacionados (Volume B) e iGAAP 2012: Instrumentos Financeiros - IAS 39 e Normas relacionadas (Volume C), que foram publicados pela LexisNexis. Essas publicações são os guias autorizados para a contabilização de instrumentos financeiros de acordo com as IFRSs. Esses dois títulos vão além e estão por trás dos requisitos técnicos, desenterrando práticas e problemas comuns e fornecendo visões, interpretações, explicações claras e exemplos. Eles permitem ao leitor obter uma sólida compreensão dos padrões e uma apreciação de seus aspectos práticos. Os livros da iGAAP 2012 Financial Instruments podem ser adquiridos através do lexisnexis. co. uk/deloitte.
O IAS 39 aplica-se a todos os tipos de instrumentos financeiros, exceto o seguinte, que são abrangidos pela IAS 39: [IAS 39.2]
interesses em subsidiárias, associadas e joint ventures contabilizados nos termos da IAS 27 Demonstrações Financeiras Consolidadas e Separadas, IAS 28 Investimentos em Associados ou IAS 31 Interesses em Joint Ventures (ou, para períodos iniciados em ou após 1 de janeiro de 2013, IFRS 10 Consolidated Financial Declarações, IAS 27 Demonstrações Financeiras Separadas ou IAS 28 Investimentos em Associados e Joint Ventures); no entanto, a NIC 39 aplica-se nos casos em que, de acordo com essas normas, esses juros devem ser contabilizados de acordo com a NIC 39. O padrão também se aplica à maioria dos derivativos sobre um interesse em direitos e obrigações de empregados de uma subsidiária, associada ou de joint venture nos planos de benefícios de empregado para que o IAS 19 Benefícios a Empregados aplica contratos a termo entre um adquirente e um acionista vendedor para comprar ou vender uma adquirida que resultará em uma combinação de negócios em uma data de aquisição futura direitos e obrigações em contratos de seguro, exceto que a IAS 39 se aplica a instrumentos financeiros que adotem a forma de um contrato de seguro (ou de resseguro), mas que envolvem principalmente a transferência de riscos financeiros e derivativos incorporados em contratos de seguros instrumentos financeiros que atendam à definição de patrimônio líquido de acordo com a IAS 32 Instrumentos Financeiros: apresentação de instrumentos financeiros, contratos e obrigações baseados em ações Transações de pagamento para as quais o pagamento baseado em ações do IFRS 2 aplica plataforma os pagamentos de reembolso aos quais as provisões, passivos contingentes e ativos contingentes do IAS 37 se aplicam.
O IAS 39 aplica-se aos créditos a receber e a pagar somente em aspectos limitados: [IAS 39.2 (b)]
A IAS 39 aplica-se a créditos de arrendamento com relação às provisões de desreconhecimento e impairment. A IAS 39 aplica-se a prestações de arrendamento com relação às provisões de desreconhecimento, a NIC 39 aplica-se a derivativos incorporados em contratos de arrendamento mercantil.
O IAS 39 aplica-se a contratos de garantia financeira emitidos. No entanto, se um emitente de contratos de garantia financeira anteriormente afirmou explicitamente que considera tais contratos como contratos de seguro e utilizou a contabilidade aplicável aos contratos de seguro, o emissor pode optar por aplicar os contratos de seguro da IAS 39 ou IFRS 4 a tais contratos de garantia financeira. O emissor pode fazer esse contrato de eleição por contrato, mas a eleição para cada contrato é irrevogável.
A contabilidade pelo titular é excluída do âmbito da IAS 39 e da IFRS 4 (a menos que o contrato seja um contrato de resseguro). Portanto, os parágrafos 10-12 da IAS 8 Políticas contábeis, mudanças nas estimativas contábeis e erros aplicam-se. Esses parágrafos especificam critérios a serem usados ​​no desenvolvimento de uma política contábil se nenhuma IFRS se aplicar especificamente a um item.
Os compromissos de empréstimos estão fora do âmbito da IAS 39 se não puderem ser liquidados em dinheiro ou outro instrumento financeiro, não são designados como passivos financeiros ao valor justo por meio do resultado, e a entidade não tem uma prática passada de vender os empréstimos que resultou do compromisso logo após a originação. Um emissor de compromisso de fornecer um empréstimo a uma taxa de juros abaixo do mercado é exigido inicialmente para reconhecer o compromisso pelo seu valor justo; posteriormente, o emissor irá reajustá-lo pelo mais alto de (a) o valor reconhecido de acordo com a IAS 37 e (b) o valor inicialmente reconhecido menos, quando apropriado, amortização acumulada reconhecida de acordo com a IAS 18. Um emissor de compromissos de empréstimo deve aplicar IAS 37 para outros compromissos de empréstimos que não estão dentro do escopo da IAS 39 (ou seja, aqueles feitos no mercado ou acima). Os compromissos de empréstimos estão sujeitos às provisões de desreconhecimento da IAS 39. [IAS 39.4]
Contratos para comprar ou vender itens financeiros.
Contratos para comprar ou vender itens financeiros estão sempre dentro do escopo da IAS 39 (a menos que uma das outras exceções se aplique).
Contratos para comprar ou vender itens não financeiros.
Os contratos para comprar ou vender itens não financeiros estão dentro do escopo da IAS 39 se eles podem ser liquidados líquidos em dinheiro ou outro ativo financeiro e não são celebrados e mantidos para o recebimento ou entrega de um item não financeiro em de acordo com os requisitos esperados de compra, venda ou uso da entidade. Os contratos para comprar ou vender itens não financeiros estão dentro do escopo se ocorrer liquidação líquida. As seguintes situações constituem liquidação líquida: [IAS 39.5-6]
os termos do contrato permitem que a contraparte estabeleça a rede, existe uma prática passada de liquidação líquida de contratos similares, existe uma prática passada, para contratos similares, de entrega do subjacente e vendê-lo dentro de um curto período após a entrega para gerar lucro das flutuações de curto prazo no preço, ou da margem de um negociante, ou o item não financeiro é prontamente conversível em dinheiro.
Embora os contratos que exigissem pagamento com base em variáveis ​​climáticas, geológicas ou outras variáveis ​​físicas foram geralmente excluídos da versão original da IAS 39, foram adicionados ao escopo da IAS 39 revisada em dezembro de 2003 se não estiverem no âmbito da IFRS 4. [IAS 39.AG1]
Definições.
Nota: Quando uma entidade aplica os Instrumentos Financeiros da IFRS 9 antes da data de inscrição obrigatória (1 de janeiro de 2015), as definições dos seguintes termos também são incorporadas no IFRS 9: contrato de garantia financeira, de derivativos, de valor justo e de desreconhecimento. A definição desses termos descritos abaixo (conforme relevante) são as da IAS 39.
Demonstração de caixa e depósitos a prazo, contas de papel comercial, notas e empréstimos a receber e a pagar e títulos de capital próprio. Estes são instrumentos financeiros desde a perspectiva do titular e do emissor. Esta categoria inclui investimentos em subsidiárias, empresas associadas e joint venture com títulos garantidos por ativos, tais como obrigações de hipotecas garantidas, acordos de recompra e pacotes de derivativos titulizados, incluindo opções, direitos, warrants, contratos de futuros, contratos a prazo e swaps.
Um derivado é um instrumento financeiro:
Cujo valor muda em resposta à alteração de uma variável subjacente, como uma taxa de juros, commodity ou preço de segurança, ou índice; Isso não requer nenhum investimento inicial, ou um que seja menor do que seria necessário para um contrato com resposta similar às mudanças nos fatores do mercado; e isso é resolvido em uma data futura. [IAS 39.9]
Envios: contratos para comprar ou vender uma quantidade específica de um instrumento financeiro, uma mercadoria ou uma moeda estrangeira a um preço determinado determinado no início, com entrega ou liquidação em uma data futura especificada. A liquidação está em vencimento mediante entrega efetiva do item especificado no contrato, ou por liquidação líquida de caixa.
Swaps de taxas de juros e contratos de taxas de juros: Contratos para trocar fluxos de caixa em uma data especificada ou uma série de datas especificadas com base em um valor nocional e taxas fixas e flutuantes.
Futuros: Contratos similares ao antecipado, mas com as seguintes diferenças: os futuros são genéricos negociados em bolsa, enquanto os avançados são personalizados. Os futuros são, geralmente, liquidados através de um comércio de compensação (reversão), enquanto os avançados geralmente são liquidados mediante entrega do item subjacente ou liquidação em dinheiro.
Opções: Contratos que dão ao comprador o direito, mas não a obrigação, comprar (opção de compra) ou vender (colocar opção) uma quantidade especificada de um instrumento financeiro, mercadoria ou moeda estrangeira específica, a um preço especificado (preço de exercício) , durante ou em um período de tempo especificado. Estes podem ser individualmente escritos ou negociados em bolsa. O comprador da opção paga ao vendedor (escritor) da opção uma taxa (prêmio) para compensar o vendedor pelo risco de pagamentos sob a opção.
Caps e pisos: estes são contratos, às vezes referidos como opções de taxa de juros. Um limite de taxa de juros compensará o comprador do limite se as taxas de juros aumentarem acima de uma taxa predeterminada (taxa de fraude), enquanto um nível de taxa de juros compensará o comprador se as taxas caírem abaixo de uma taxa predeterminada.
Derivados embutidos.
Alguns contratos que eles mesmos não são instrumentos financeiros podem, no entanto, ter instrumentos financeiros embutidos neles. Por exemplo, um contrato para comprar uma mercadoria a um preço fixo para entrega em uma data futura incorporou nele um derivado indexado ao preço da mercadoria.
Um derivado embutido é um recurso dentro de um contrato, de modo que os fluxos de caixa associados a esse recurso se comportam de forma semelhante a uma derivada autônoma. Da mesma forma que os derivativos devem ser contabilizados pelo valor justo no balanço patrimonial com as alterações reconhecidas na demonstração do resultado, portanto, alguns derivativos embutidos. A IAS 39 exige que um derivado embutido seja separado do contrato de hospedagem e considerado como derivado quando: [IAS 39.11]
os riscos econômicos e as características do derivado embutido não estão intimamente relacionados com os do contrato de hospedagem, um instrumento separado com os mesmos termos que o derivado embutido atenderia à definição de um derivado e o instrumento inteiro não é mensurado pelo valor justo com mudanças em valor justo reconhecido na demonstração do resultado.
Se um derivado embutido for separado, o contrato do host é contabilizado de acordo com o padrão apropriado (por exemplo, de acordo com a IAS 39 se o host for um instrumento financeiro). O Apêndice A para IAS 39 fornece exemplos de derivativos embutidos que estão intimamente relacionados aos seus hosts, e aqueles que não são.
Exemplos de derivados embutidos que não estão intimamente relacionados aos seus hosts (e, portanto, devem ser contabilizados separadamente) incluem:
a opção de conversão de capital em dívida conversível em ações ordinárias (apenas na perspectiva do titular) [IAS 39.AG30 (f)] juros indexados ou pagamentos de principal em contratos de dívida de host [IAS 39.AG30 (e)] cap e piso opções de contratos de dívida do host que são in-the-money quando o instrumento foi emitido [IAS 39.AG33 (b)] ajustes de inflação alavancados para pagamentos de arrendamento [IAS 39.AG33 (f)] derivativos de moeda em contratos de compra ou venda para não - itens financeiros em que a moeda estrangeira não é de contraparte do contrato, não é a moeda em que o bem ou serviço relacionado é rotineiramente denominado em transações comerciais em todo o mundo e não é a moeda comumente utilizada em tais contratos no ambiente econômico em que a transação ocorre. [IAS 39.AG33 (d)]
Se a IAS 39 exige que um derivado embutido seja separado do contrato de hospedagem, mas a entidade não consegue medir o derivado embutido separadamente, todo o contrato combinado deve ser designado como um ativo financeiro ao valor justo por meio do resultado. [IAS 39.12]
Classificação como passivo ou patrimônio.
Uma vez que a IAS 39 não aborda a contabilização de instrumentos de capital emitidos pela empresa responsável pelo relatório, mas trata da contabilização de passivos financeiros, a classificação de um instrumento como passivo ou como patrimônio é fundamental. IAS 32 Instrumentos Financeiros: a apresentação aborda a questão da classificação.
Classificação de ativos financeiros.
A IAS 39 exige que os ativos financeiros sejam classificados em uma das seguintes categorias: [IAS 39.45]
Ativos financeiros ao valor justo por meio do resultado Recursos financeiros disponíveis para venda Empréstimos e recebíveis Investimentos mantidos até o vencimento.
Essas categorias são usadas para determinar como um determinado activo financeiro é reconhecido e medido nas demonstrações financeiras.
Ativos financeiros ao valor justo por meio do resultado. Esta categoria possui duas subcategorias:
Designada. O primeiro inclui qualquer ativo financeiro que é designado no reconhecimento inicial como um a ser mensurado pelo valor justo com as mudanças de valor justo nos lucros ou prejuízos. Retido para negociação. A segunda categoria inclui ativos financeiros que são mantidos para negociação. Todos os derivativos (exceto os instrumentos de hedge designados) e os ativos financeiros adquiridos ou mantidos para fins de venda no curto prazo ou para os quais existe um padrão recente de obtenção de lucros a curto prazo são mantidos para negociação. [IAS 39.9]
Os ativos financeiros disponíveis para venda (AFS) são quaisquer ativos financeiros não derivativos designados no reconhecimento inicial como disponíveis para venda ou quaisquer outros instrumentos que não sejam classificados como (a) empréstimos e recebíveis, (b) mantidos até o vencimento investimentos ou (c) ativos financeiros ao valor justo por meio do resultado. [IAS 39.9] Os ativos da AFS são mensurados ao valor justo no balanço patrimonial. As variações do valor justo nos ativos da AFS são reconhecidas diretamente no patrimônio líquido, por meio do demonstrativo das mutações do patrimônio líquido, exceto os juros sobre os ativos da AFS (que são reconhecidos no resultado com base na rentabilidade efetiva), perdas por redução ao valor recuperável e (para instrumentos de dívida AFS com juros ) ganhos ou perdas cambiais. O ganho ou perda acumulado que foi reconhecido no patrimônio líquido é reconhecido no resultado quando um activo financeiro disponível para venda é desreconhecido. [IAS 39.55 (b)]
Empréstimos e recebíveis são ativos financeiros não derivativos com pagamentos fixos ou determináveis ​​que não são cotados em um mercado ativo, que não sejam mantidos para negociação ou designados no reconhecimento inicial como ativos ao valor justo por meio do resultado ou como disponíveis para venda. Os empréstimos e recebíveis para os quais o detentor não pode recuperar substancialmente todo o seu investimento inicial, exceto por deterioração do crédito, devem ser classificados como disponíveis para venda. [IAS 39.9] Os empréstimos e recebíveis são mensurados ao custo amortizado. [IAS 39.46 (a)]
Os investimentos mantidos até o vencimento são ativos financeiros não derivativos com pagamentos fixos ou determináveis ​​que uma entidade pretende e é capaz de manter até o vencimento e que não atendem à definição de empréstimos e recebíveis e não são designados no reconhecimento inicial como ativos na feira valor através de ganhos ou perdas ou disponíveis para venda. Os investimentos mantidos até o vencimento são mensurados ao custo amortizado. Se uma entidade vender um investimento mantido até o vencimento, exceto em montantes insignificantes ou como conseqüência de um evento isolado e não recorrente além de seu controle que não poderia ser razoavelmente antecipado, todos os outros investimentos mantidos até o vencimento devem ser reclassificado como disponível para venda para os próximos dois anos financeiros atuais e os próximos dois. [IAS 39.9] Os investimentos mantidos até o vencimento são mensurados ao custo amortizado. [IAS 39.46 (b)]
Classificação de passivos financeiros.
A IAS 39 reconhece duas classes de passivos financeiros: [IAS 39.47]
Passivos financeiros ao valor justo por meio do resultado Outros passivos financeiros mensurados ao custo amortizado utilizando o método do juro efetivo.
A categoria de passivo financeiro ao valor justo por meio do resultado tem duas subcategorias:
Designada. um passivo financeiro que é designado pela entidade como um passivo ao valor justo por meio do resultado após o reconhecimento inicial. Retido para negociação. um passivo financeiro classificado como detido para negociação, como uma obrigação de títulos emprestados em uma venda curta, que deve ser devolvida no futuro.
Reconhecimento inicial.
A NIC 39 exige o reconhecimento de um ativo financeiro ou de um passivo financeiro quando, e somente quando, a entidade se torna parte das disposições contratuais do instrumento, sujeito às seguintes provisões em relação a compras regulares. [IAS 39.14]
Compras regulares ou vendas de um ativo financeiro. Uma maneira regular de compra ou venda de ativos financeiros é reconhecida e desreconhecida usando data de negociação ou contabilidade de data de liquidação. [IAS 39.38] O método utilizado deve ser aplicado de forma consistente para todas as compras e vendas de ativos financeiros pertencentes à mesma categoria de ativos financeiros conforme definido na IAS 39 (nota que, para esse efeito, os ativos de negociação representam uma categoria diferente de ativos designados pelo valor justo por meio do resultado). A escolha do método é uma política contábil. [IAS 39.38]
O IAS 39 exige que todos os ativos financeiros e todos os passivos financeiros sejam reconhecidos no balanço patrimonial. Isso inclui todos os derivativos. Historicamente, em muitas partes do mundo, os derivativos não foram reconhecidos nos balanços da empresa. O argumento foi que, no momento em que o contrato derivado foi celebrado, não havia quantia de caixa ou outros ativos pagos. O custo zero justifica o não reconhecimento, apesar de o tempo passar e o valor da variável subjacente (taxa, preço ou índice) mudar, o derivativo tem um valor positivo (ativo) ou negativo (passivo).
Medição inicial.
Inicialmente, os ativos e passivos financeiros devem ser mensurados ao valor justo (incluindo custos de transação, por ativos e passivos não mensurados ao valor justo por meio do resultado). [IAS 39.43]
Medição posterior ao reconhecimento inicial.
Posteriormente, os ativos e passivos financeiros (incluindo derivativos) devem ser mensurados ao valor justo, com as seguintes exceções: [IAS 39.46-47]
Empréstimos e recebíveis, investimentos mantidos até o vencimento e passivos financeiros não derivativos devem ser mensurados ao custo amortizado usando o método de juros efetivos. Os investimentos em instrumentos de capital próprio sem medição confiável do valor justo (e derivativos indexados a tais instrumentos de capital) devem ser mensurados ao custo. Os ativos e passivos financeiros que são designados como item coberto ou instrumento de hedge estão sujeitos à mensuração sob os requisitos contábeis de hedge da IAS 39. Os passivos financeiros que surgem quando uma transferência de um ativo financeiro não é qualificado para desreconhecimento ou que são contabilizados usando o método de envolvimento contínuo, estão sujeitos a requisitos de medição específicos.
O valor justo é o valor para o qual um ativo poderia ser trocado, ou um passivo liquidado, entre partes bem informadas e dispostas em uma transação independente. [IAS 39.9] O IAS 39 fornece uma hierarquia a ser usada para determinar o valor justo de um instrumento financeiro: [IAS 39 Apêndice A, parágrafos AG69-82]
Os preços de mercado cotados em um mercado ativo são a melhor evidência de valor justo e devem ser utilizados, quando existem, para medir o instrumento financeiro. Se um mercado de um instrumento financeiro não estiver ativo, uma entidade estabelece o valor justo usando uma técnica de avaliação que aproveite ao máximo os insumos do mercado e inclua transações recentes do mercado de longo prazo, referência ao valor justo atual de outro instrumento que é substancialmente o mesmo , análise de fluxo de caixa com desconto e modelos de preços de opções. Uma técnica de avaliação aceitável incorpora todos os fatores que os participantes do mercado considerariam ao estabelecer um preço e é consistente com as metodologias econômicas aceitas para avaliar os instrumentos financeiros. Se não houver um mercado ativo para um instrumento de patrimônio e a gama de valores justos razoáveis ​​é significativa e essas estimativas não podem ser feitas de forma confiável, então uma entidade deve medir o instrumento patrimonial ao custo menos prejuízo.
O custo amortizado é calculado utilizando o método do juro efetivo. A taxa de juros efetiva é a taxa que exatamente descontra os pagamentos ou recibos de caixa futuros estimados através da vida esperada do instrumento financeiro para o valor contábil líquido do ativo ou passivo financeiro. Os ativos financeiros que não são contabilizados pelo valor justo, embora os lucros e perdas estão sujeitos a um teste de impairment. Se a vida esperada não puder ser determinada de forma confiável, então a vida contratual é usada.
IAS 39 opção de valor justo.
A IAS 39 permite que as entidades designem, no momento da aquisição ou emissão, qualquer ativo financeiro ou passivo financeiro a avaliar pelo valor justo, com as mudanças de valor reconhecidas no resultado. Esta opção está disponível, mesmo que o ativo financeiro ou o passivo financeiro normalmente, por sua natureza, sejam mensurados ao custo amortizado - mas somente se o valor justo puder ser mensurado de forma confiável.
Em junho de 2005, o IASB emitiu sua emenda à IAS 39 para restringir o uso da opção de designar qualquer ativo financeiro ou qualquer passivo financeiro a ser mensurado ao valor justo por meio do resultado (a opção de valor justo). As revisões limitam o uso da opção aos instrumentos financeiros que atinjam certas condições: [IAS 39.9]
a designação da opção de valor justo elimina ou reduz significativamente a inadimplência contábil, ou um grupo de ativos financeiros, passivos financeiros ou ambos são gerenciados e seu desempenho é avaliado pelo valor justo por meio da administração da entidade.
Uma vez que um instrumento é colocado na categoria de valor justo através de lucro e perda, não pode ser reclassificado com algumas exceções. [IAS 39.50] Em outubro de 2008, o IASB emitiu emendas ao IAS 39. As alterações permitem a reclassificação de alguns instrumentos financeiros fora da categoria de valor justo através de lucro ou perda (FVTPL) e fora do mercado disponível, categoria de venda - para mais detalhes, ver IAS 39.50 (c). Em caso de reclassificação, são necessárias divulgações adicionais nos termos da IFRS 7 Instrumentos Financeiros: Divulgações. Em março de 2009, o IASB esclareceu que as reclassificações de ativos financeiros de acordo com as alterações de outubro de 2008 (ver acima): sobre a reclassificação de um ativo financeiro fora da categoria "valor justo por meio do resultado", todos os derivados embutidos devem ser (re) avaliados e, se necessário, contabilizado separadamente nas demonstrações financeiras.
IAS 39 disponível para venda opção para empréstimos e recebíveis.
A IAS 39 permite que as entidades designem, no momento da aquisição, qualquer empréstimo ou receita disponível para venda, caso em que é mensurado pelo valor justo, com variações no valor justo reconhecidas no patrimônio líquido.
Um ativo financeiro ou grupo de ativos está comprometido e as perdas por redução ao valor recuperável são reconhecidas, somente se houver evidência objetiva como resultado de um ou mais eventos ocorridos após o reconhecimento inicial do ativo. Uma entidade é obrigada a avaliar em cada data do balanço se existe alguma evidência objetiva de prejuízo. Se existe tal evidência, a entidade é obrigada a fazer um cálculo detalhado de impairment para determinar se uma perda por redução ao valor recuperável deve ser reconhecida. [IAS 39.58] O valor da perda é mensurado como a diferença entre o valor contábil do ativo eo valor presente dos fluxos de caixa estimados descontados à taxa de juros efetiva original do ativo financeiro. [IAS 39.63]
Os ativos que são avaliados individualmente e para os quais não há imparidade são agrupados com ativos financeiros com estatísticas similares de risco de crédito e avaliados coletivamente por impairment. [IAS 39.64]
Se, em um período subsequente, o valor da perda por redução ao valor recuperável relativo a um activo financeiro registado ao custo amortizado ou um instrumento de dívida registado como disponível para venda diminua devido a um evento ocorrido após a perda de imparidade inicialmente reconhecida, a imparidade previamente reconhecida A perda é revertida através de resultados. As imparidades relacionadas a investimentos em instrumentos de capital disponíveis para venda não são revertidas através de resultados. [IAS 39.65]
Um contrato de garantia financeira é um contrato que exige que o emissor efetue pagamentos específicos para reembolsar o detentor por uma perda em que incorre porque um devedor especificado não efetua o pagamento quando vencida. [IAS 39.9]
De acordo com a NIC 39 conforme alterada, os contratos de garantia financeira são reconhecidos:
inicialmente pelo valor justo. Se o contrato de garantia financeira tiver sido emitido em uma transação autônoma independente de uma parte não vinculada, seu valor justo no início provavelmente igualará a consideração recebida, a menos que existam provas em contrário. subsequentemente no mais alto (i) o valor determinado de acordo com as provisões, passivos contingentes e ativos contingentes da IAS 37 e (ii) o valor inicialmente reconhecido menos, quando apropriado, a amortização acumulada reconhecida de acordo com a IAS 18 Receita. (Se os critérios especificados forem cumpridos, o emissor pode usar a opção de valor justo na IAS 39. Além disso, diferentes requisitos continuam a se aplicar no contexto especializado de uma transação de desreconhecimento "falhada".)
Algumas garantias relacionadas ao crédito, como condição prévia para o pagamento, exigem que o detentor seja exposto e tenha incorrido em uma perda, o fracasso do devedor em efetuar pagamentos sobre o ativo garantido quando devidos. Um exemplo de tal garantia é um derivado de crédito que exige pagamentos em resposta a mudanças em uma classificação de crédito ou índice de crédito especificado. Estes são derivados e devem ser mensurados pelo valor justo de acordo com a IAS 39.
Desreconhecimento de um ativo financeiro.
A premissa básica para o modelo de desreconhecimento na IAS 39 é determinar se o bem em consideração para desreconhecimento é: [IAS 39.16]
um ativo na sua totalidade ou fluxos de caixa especificamente identificados de um ativo ou uma parcela totalmente proporcionada dos fluxos de caixa de um ativo ou uma parcela totalmente proporcionada de fluxos de caixa especificamente identificados de um ativo financeiro.
Uma vez que o bem em consideração para desreconhecimento foi determinado, uma avaliação é feita sobre se o ativo foi transferido e, em caso afirmativo, se a transferência desse ativo é posteriormente elegível para desreconhecimento.
Um activo é transferido se a entidade transferiu os direitos contratuais para receber os fluxos de caixa, ou a entidade manteve os direitos contratuais para receber os fluxos de caixa do ativo, mas assumiu a obrigação contratual de passar os fluxos de caixa sob um acordo que satisfaz as seguintes três condições: [IAS 39.17-19]
a entidade não tem obrigação de pagar montantes para o eventual destinatário, a menos que colete valores equivalentes no ativo original, a entidade está proibida de vender ou comprometer o ativo original (exceto como garantia para o eventual destinatário), a entidade tem a obrigação de remeter esses fluxos de caixa sem atraso material.
Uma vez que uma entidade determinou que o ativo foi transferido, ele determina se transferiu ou não substancialmente todos os riscos e benefícios da propriedade do ativo. Se substancialmente todos os riscos e benefícios foram transferidos, o recurso é desreconhecido. Se substancialmente todos os riscos e recompensas foram mantidos, o desreconhecimento do ativo é impedido. [IAS 39.20]
Se a entidade não tiver retido nem transferido substancialmente todos os riscos e benefícios do ativo, a entidade deve avaliar se abandonou o controle do ativo ou não. Se a entidade não controlar o recurso, o desreconhecimento é apropriado; no entanto, se a entidade tiver mantido o controle do bem, a entidade continua a reconhecer o ativo na medida em que ele tenha um envolvimento contínuo no ativo. [IAS 39.30]
Essas várias etapas de desreconhecimento estão resumidas na árvore de decisão na AG36.
Desreconhecimento de um passivo financeiro.
Um passivo financeiro deve ser removido do balanço quando, e somente quando, é extinto, ou seja, quando a obrigação especificada no contrato é descarregada ou cancelada ou expira. [IAS 39.39] Quando houve um intercâmbio entre um mutuário existente e credor de instrumentos de dívida com termos substancialmente diferentes, ou houve uma modificação substancial dos termos de um passivo financeiro existente, esta transação é contabilizada como uma extinção do responsabilidade financeira original e reconhecimento de um novo passivo financeiro. Um ganho ou perda por extinção do passivo financeiro original é reconhecido no resultado. [IAS 39.40-41]
Contabilidade de hedge.
A IAS 39 permite a contabilidade de cobertura em determinadas circunstâncias, desde que a relação de cobertura seja: [IAS 39.88]
formalmente designado e documentado, incluindo o objetivo e a estratégia de gerenciamento de risco da entidade para a realização do hedge, a identificação do instrumento de hedge, o item coberto, a natureza do risco coberto e a forma como a entidade avaliará a eficácia do instrumento de hedge e deverá ser altamente efetivo na obtenção de mudanças compensatórias no valor justo ou fluxos de caixa atribuíveis ao risco coberto como designado e documentado, e a efetividade pode ser mensurada e avaliada de forma confiável de forma contínua e determinada a ser altamente efetiva.
O instrumento de hedge é um instrumento cujo valor justo ou fluxos de caixa devem compensar mudanças no valor justo ou fluxos de caixa de um item coberto designado. [IAS 39.9]
Todos os contratos de derivativos com uma contraparte externa podem ser designados como instrumentos de hedge, exceto por algumas opções escritas. Um ativo ou passivo financeiro não derivado não pode ser designado como instrumento de hedge, exceto como hedge do risco de moeda estrangeira. [IAS 39.72]
For hedge accounting purposes, only instruments that involve a party external to the reporting entity can be designated as a hedging instrument. This applies to intragroup transactions as well (with the exception of certain foreign currency hedges of forecast intragroup transactions – see below). However, they may qualify for hedge accounting in individual financial statements. [IAS 39.73]
Hedged item is an item that exposes the entity to risk of changes in fair value or future cash flows and is designated as being hedged. [IAS 39.9]
A hedged item can be: [IAS 39.78-82]
a single recognised asset or liability, firm commitment, highly probable transaction or a net investment in a foreign operation a group of assets, liabilities, firm commitments, highly probable forecast transactions or net investments in foreign operations with similar risk characteristics a held-to-maturity investment for foreign currency or credit risk (but not for interest risk or prepayment risk) a portion of the cash flows or fair value of a financial asset or financial liability or a non-financial item for foreign currency risk only for all risks of the entire item in a portfolio hedge of interest rate risk (Macro Hedge) only, a portion of the portfolio of financial assets or financial liabilities that share the risk being hedged.
In April 2005, the IASB amended IAS 39 to permit the foreign currency risk of a highly probable intragroup forecast transaction to qualify as the hedged item in a cash flow hedge 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 financial statements. [IAS 39.80]
In 30 July 2008, the IASB amended IAS 39 to clarify two hedge accounting issues:
inflation in a financial hedged item a one-sided risk in a hedged item.
IAS 39 requires hedge effectiveness to be assessed both prospectively and retrospectively. To qualify for hedge accounting at the inception of a hedge and, at a minimum, at each reporting date, the changes in the fair value or cash flows of the hedged item attributable to the hedged risk must be expected to be highly effective in offsetting the changes in the fair value or cash flows of the hedging instrument on a prospective basis, and on a retrospective basis where actual results are within a range of 80% to 125%.
All hedge ineffectiveness is recognised immediately in profit or loss (including ineffectiveness within the 80% to 125% window).
Categories of hedges.
A fair value hedge is a hedge of the exposure to changes in fair value of a recognised asset or liability or a previously unrecognised firm commitment or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. [IAS 39.86(a)] The gain or loss from the change in fair value of the hedging instrument is recognised immediately in profit or loss. At the same time the carrying amount of the hedged item is adjusted for the corresponding gain or loss with respect to the hedged risk, which is also recognised immediately in net profit or loss. [IAS 39.89]
A cash flow hedge is a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss. [IAS 39.86(b)] The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income. [IAS 39.95]
If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, any gain or loss on the hedging instrument that was previously recognised directly in equity is 'recycled' into profit or loss in the same period(s) in which the financial asset or liability affects profit or loss. [IAS 39.97]
If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, then the entity has an accounting policy option that must be applied to all such hedges of forecast transactions: [IAS 39.98]
Same accounting as for recognition of a financial asset or financial liability – any gain or loss on the hedging instrument that was previously recognised in other comprehensive income is 'recycled' into profit or loss in the same period(s) in which the non-financial asset or liability affects profit or loss. 'Basis adjustment' of the acquired non-financial asset or liability – the gain or loss on the hedging instrument that was previously recognised in other comprehensive income is removed from equity and is included in the initial cost or other carrying amount of the acquired non-financial asset or liability.
A hedge of a net investment in a foreign operation as defined in IAS 21 The Effects of Changes in Foreign Exchange Rates is accounted for similarly to a cash flow hedge. [IAS 39.102]
A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or as a cash flow hedge.
Discontinuation of hedge accounting.
Hedge accounting must be discontinued prospectively if: [IAS 39.91 and 39.101]
the hedging instrument expires or is sold, terminated, or exercised the hedge no longer meets the hedge accounting criteria – for example it is no longer effective for cash flow hedges the forecast transaction is no longer expected to occur, or the entity revokes the hedge designation.
In June 2013, the IASB amended IAS 39 to make it clear that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. [IAS 39.91 and IAS 39.101]
For the purpose of measuring the carrying amount of the hedged item when fair value hedge accounting ceases, a revised effective interest rate is calculated. [IAS 39.BC35A]
If hedge accounting ceases for a cash flow hedge relationship because the forecast transaction is no longer expected to occur, gains and losses deferred in other comprehensive income must be taken to profit or loss immediately. If the transaction is still expected to occur and the hedge relationship ceases, the amounts accumulated in equity will be retained in equity until the hedged item affects profit or loss. [IAS 39.101(c)]
If a hedged financial instrument that is measured at amortised cost has been adjusted for the gain or loss attributable to the hedged risk in a fair value hedge, this adjustment is amortised to profit or loss based on a recalculated effective interest rate on this date such that the adjustment is fully amortised by the maturity of the instrument. Amortisation may begin as soon as an adjustment exists and must begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risks being hedged.
Divulgação.
In 2003 all disclosures about financial instruments were moved to IAS 32, so IAS 32 was renamed Financial Instruments: Disclosure and Presentation . In 2005, the IASB issued IFRS 7 Financial Instruments: Disclosures to replace the disclosure portions of IAS 32 effective 1 January 2007. IFRS 7 also superseded IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions .
Links Rápidos.
Notícias relacionadas.
Report from EFRAG's fair value conference.
ESMA publishes 21st enforcement decisions report.
ESAs speak out against "top up" regarding IFRS 4 amendments.
European Commission text with "top up" regarding IFRS 4 amendments.
EFRAG believes IFRS 4 amendments address the main concerns of entities whose activities are predominantly related to insurance.
ESMA publishes 20th enforcement decisions report.
Publicações relacionadas.
GAAP 2018 Volume E: UK Reporting - IAS 39 and related Standards.
A Closer Look — Impact of transition from IAS 39 to IFRS 9 on the exchange of modification of financial liabilities.
EFRAG endorsement status report 13 July 2017.
EFRAG endorsement status report 13 January 2017.
Related Standards.
IAS 32 — Financial Instruments: Presentation.
Interpretações relacionadas.
IFRIC 9 — Reassessment of Embedded Derivatives.
IFRIC 10 — Interim Financial Reporting and Impairment.
IFRIC 12 — Service Concession Arrangements.
IFRIC 16 - Cobertura de um investimento líquido em uma operação no exterior.
IFRIC 19 — Extinguishing Financial Liabilities with Equity Instruments.
Projetos relacionados.
Annual improvements — 2011-2013 cycle.
Different effective dates of IFRS 9 and the new insurance contracts standard.
Financial instruments — Macro hedge accounting.
Financial instruments — General hedge accounting.
Financial instruments — Classification and measurement.
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Lista de correção para hifenização.
Essas palavras servem como exceções. Uma vez inseridos, eles são apenas hifenizados nos pontos de divisão especificados. Cada palavra deve estar em uma linha separada.

Hedge Accounting: IAS 39 vs. IFRS 9.
Business world as of today presents a huge amount of various risks to almost every company or entrepreneur. I’m sure that also your company faces at least some of these risks: foreign currency risk, price risk, inflation risk, credit risk – just name it.
Many businesses decided to do something about these risks and started to manage their exposures. Como?
They undertake various risk management strategies. In most cases, companies acquire certain derivatives or other instruments to protect themselves.
What is a hedging?
A hedging is making an investment or acquiring some derivative or non-derivative instruments in order to offset potential losses (or gains) that may be incurred on some items as a result of particular risk.
Example of a hedge.
As an example, imagine your company that normally operates is USD. Recently, your company has decided to spread its business to Europe and made a sale of some goods to European customer for let’s say 20 million EUR. Invoice to EU customer is due after 9 months.
However, your company is afraid that due to movements in foreign currency rates it will get significantly less USD after 9 months and therefore, it enters into offsetting foreign currency forward contract with bank to sell 20 mil. EUR for some fixed rate after 9 months.
What’s the hedge here?
Hedged risk is a foreign currency risk.
Hedged item is a receivable in foreign currency.
Hedging instrument is a foreign currency forward contract to sell EUR for a fixed rate at a fixed date.
What is a hedge accounting?
A hedge accounting means designating one or more hedging instruments so that their change in fair value offsets the change in fair value or the change in cash flows of a hedged item.
Let’s explain it on our example: how would you account for a change in fair value of the above foreign currency forward?
Without hedge accounting , any gain or loss resulting from the change in fair value of foreign currency forward would be recognized directly to profit or loss.
Why hedge accounting?
First of all, hedge accounting is NOT mandatory. It is optional , so you can select not to follow it and recognize all gains or losses from your hedging instruments to profit or loss.
However, when you apply hedge accounting, you show to the readers of your financial statements:
That your company faces certain risks. That you perform certain risk management strategies in order to mitigate those risks. How effective these strategies are.
In fact, with hedge accounting, your profit and loss statement is less volatile, because you basically match these gains and losses with gains / losses on your hedged item.
Why do hedge accounting rules change?
Hedge accounting rules in I AS 39 are just too complex and strict . Many companies that actively pursued hedging strategies could not apply hedge accounting in line with IAS 39 because the rules did not allow it.
Therefore, investors often required preparation of non-audited “pro-forma” information. Thus a company’s accountants might have ended with a task to prepare 2 sets of financial statements:
Audited financial statements where no hedge accounting was applied due to not meeting the rules in IAS 39. Non-audited, pro-forma financial statements with applied hedge accounting to reflect true risk management situation.
As a result, new hedging rules in IFRS 9 were issued on 19 November 2013.
What do IAS 39 and IFRS 9 have in common?
There are several major points that remained almost the same:
A hedge accounting is an option, not an obligation – both in line with IAS 39 and IFRS 9. Terminology.
Both standards use the same most important terms: hedged item, hedging instrument, fair value hedge, cash flow hedge, hedge effectiveness, etc. Hedge documentation.
Both IAS 39 and IFRS 9 require hedge documentation in order to qualify for a hedge accounting. Categories of hedges.
Both IAS 39 and IFRS 9 arrange the hedge accounting for the same categories: fair value hedge, cash flow hedge and net investment hedge. The mechanics of the hedge accounting is basically the same.
Both IAS 39 and IFRS 9 require accounting for any hedge ineffectiveness in profit or loss. There is an exception related to hedge of equity investment designated at fair value through other comprehensive income in line with IFRS 9: all hedge ineffectiveness is recognized to other comprehensive income. No written options.
You cannot use written options as a hedging instrument in line with both IAS 39 and IFRS 9.
Differences in hedge accounting between IAS 39 and IFRS 9.
The basics of hedge accounting have not changed. In my opinion the major change lies in widening the range of situations to which you can apply hedge accounting.
In other words, under new IFRS 9 rules, you can apply hedge accounting to more situations as before because the rules are more practical, principle based and less strict.
Let’s go through the most important changes:
Under older rules in IAS 39, companies did not have much choices of hedging instruments. Either they took some derivatives, or alternatively they could take also non-derivative financial asset or liability in a hedge of a foreign currency risk. Não muito.
IFRS 9 allows you to use broader range of hedging instruments, so now you can use any non-derivative financial asset or liability measured at fair value through profit or loss.
Example: Let’s say you have large inventories of crude oil and you would like to hedge their fair value. Therefore you make an investment into some fund with portfolio of commodity – linked instruments.
In line with IAS 39, you cannot apply hedge accounting, because in a fair value hedge, you can use only some derivative as your hedging instrument.
In line with IFRS 9, you can apply hedge accounting, because IFRS 9 allows designating also non-derivative financial instrument measured at fair value through profit or loss. I assume your investment into the fund would meet this condition. What can be your hedged item.
With regard to non-financial items IAS 39 allows hedging only a non-financial item in its entirety and not just some risk component of it.
IFRS 9 allows hedging a risk component of a non-financial item if that component is separately identifiable and measurable.
Example : an airline might face significant price risk involved in jet fuel. The prices of jet fuel might change due to several reasons: rising inflation, changing crude oil price and many other factors. Therefore, an airline might decide to hedge only a benchmark crude oil price risk component included in the price of jet fuel. Such a hedging might be performed by acquiring commodity forward contracts to buy crude oil.
In line with IAS 39, an airline would not have been able to account for this commodity forward contract as for a hedge. The reason is that an airline’s hedged item is just one risk component of a non-financial asset (jet fuel) and IAS 39 allows hedging non-financial items only in their entirety.
In line with IFRS 9, an airline can apply hedge accounting because IFRS 9 allows designating separate risk component of non-financial item as a hedged item. Testing hedge effectiveness.
Testing the hedge effectiveness significantly simplified and came closer to the risk management needs.
IFRS 9 enables an entity to use information produced internally for risk management purposes and stopped forcing to perform complex analysis required only for accounting purposes.
IAS 39 requires testing hedge effectiveness both prospectively and retrospectively. A hedge is highly effective only if the offset is in the range of 80-125 percent. It means that if a company applies IAS 39, its accountants must perform numerical test of effectiveness – often these tests were performed solely in order to meet IAS 39 and for no other reason.
IFRS 9 outlines more principle-based criteria with no specific numerical thresholds. Namely, a hedge qualifies for hedge accounting if:
There is an economic relationship between the hedging instrument and the hedge item.
This relationship requires some judgment supported by a qualitative or a quantitative assessment of the economic relationship. The effect of credit risk does not dominate the value changes that result from that economic relationship. The hedge ration is designated based on actual quantities of hedged item and the hedging instrument. Reequilibrando.
Rebalancing a hedge means modifying the hedge by adjusting a hedge ration for risk management purposes. It’s usually performed when the quantities of a hedge instrument or a hedged item change.
In a similar situation, IAS 39 required terminating the current hedge relationship and starting the new one. In practical terms, you would have to start all over again: prepare a hedge documentation, assess its effectiveness etc.
IFRS 9 makes it easier, because it allows certain changes to the hedge relationship without necessity to terminate it and to start the new one. Discontinuing hedge accounting.
IAS 39 allowed companies to discontinue hedge accounting (except for other circumstances) voluntarily, when the company wants to.
On the other hand, IFRS 9 does not allow terminating a hedge relationship voluntarily, so once you decide to apply hedge accounting under IFRS 9, you cannot discontinue it unless the risk management objective changed, the hedge expired or is no longer eligible. Outras diferenças.
There is a number of other differences between hedge accounting under IAS 39 and IFRS 9. Just to name a few of them:
Possibility to apply hedge accounting to exposures that give rise to two risk positions that are managed by separate derivatives over different periods – new in IFRS 9. Less profit or loss volatility when using options and / or forwards. Option to account for “own use” contracts to buy or sell a non-financial item at fair value through profit or loss if it eliminates accounting mismatch – new in IFRS 9. More alternatives for hedges of credit risk using credit derivatives.
Please watch the following video about the hedging under IAS 39 and IFRS 9 here:
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27 Comentários.
Can you explain me detail, here what’s “Hedge documentation” refers?
Hi Mohamed, hedge documentation literally means some document in which you describe the hedge relationship. Exact conditions are stated in IAS 39/IFRS 9. S.
Your works are appreciated! I’ve became one of your IFRS fan in a month time.
what’s Hedge effectiveness & ineffectiveness? Por favor explique.
Mohamed, when you compare the change in fair value of your hedging instrument with the change in FV of your hedged item, then – do these changes match? Or are they totally different? IAS 39 says that if one change is 80-125% of the other change, then the hedge is effective. If it is more than 125% or less than 80%, then there is an ineffective part. S.
I confuse about cash flow hegde & FV hegde. Plz give a an explanation and example to make it clear 🙂
Thank U so much.
Grateful for the resources made available. God bless you and continuously empower you to be a resource for your generation and generations unborn…..Amen.
Hi Silva, please how can I calculate effective interest rate of a 5 year loan with an bank interest of 10% payable annually.
may i know when to use discounted method (i’ve seen from other textbook) of change in fair value of hedge intstrument? where and when to use discounting? cash flow hedge and/or fair value hedge. Obrigado pelo seu tempo.
I need the comparison between IFRS 9 and IAS 39. I have gone through Hedge Accounting: IAS 39 vs. IFRS 9, which was very helpful. As i am doing an academic study, need more detailed differences. Could you please send me the detailed differences.
I haven’t prepared any detailed analysis, so in fact, I have nothing to send you. Tenha um bom dia!
Thank you Silvia for sharing all of these. 🙂 God bless you! & lt; 3.
Thanks for sharing… It certainly helps to understand better.
However, I would like to ask… For a cash flow hedge, in the event there is a loss on derivative and a gain for the asset, how would I acocunt it for?
Look forward to hear from you soon. Thansks.
basically, you don’t account for any gain on the asset. With regard to the loss on derivative:
1. You determine whether the hedge is effective and still meets the criteria for hedge accounting;
2. If it’s effective, you book the loss on derivative in OCI up to the effective portion and the rest (ineffective portion) in P/L.
It’s in short and I would need far more than 1 comment to explain that. I cover all this in my IFRS Kit.
Tenha um bom dia!
Obrigado pela partilha.
I’d have a question if thats ok:
if i have a FVTPL Bond that is hedged by an interes rate swap (ccs).
Is it true that hedge accounting is not allowed according to IAS 39?
How would this scenario have to be accounted?
Thank you for a great source of information. Can I ask a question?
If a FX forward contract is entered to hedge committed sales in foreign currency. But if the hedge is not designated as CFH or FVH, when the forward contract is settled is it possible to record cash to be received/paid from the forward contract as sales? (as recycling OCI to sales) Or does it have to be recorded as gain/loss from derivatives (below EBITDA)?
Can you explain me what is the embedded derivatives within a long-term contract as Power Purchase Agreement (PPA), I cannot fathom the concept..
i have a small question.
under IFRS 9 Impairment – why we are not able to do reclassification and ( or )reversal for equity securities.
Obrigado pelo excelente artigo. I am new to hedge accounting and found your article very helpful. If a company has forward currency contracts to hedge debtors in general and hedge accounting is not used, how do you recognise the forward currency contracts in the accounts? Say for example, a forward contract entered into on 28/2/16 to sell US$1 million at the forward rate of NZD$0.65 with a maturity date of 30/06/16 and the forward rate was NZD$0.67 at balance date 31/03/16. How should the forward contract be recognised in the balance sheet on 28/2/16, 31/3/16 and 30/6/16, if hedge accounting is not used?
obrigado! Well, if you don’t apply hedge accounting, then on the initial recognition, you don’t recognize anything, because your forward should be at fair value close to zero. But subsequently, you need to calculate the fair value of your forward contract and recognize it in profit or loss. Por exemplo. at 31/3, your fair value is USD 1 mil. x (0.65-0.67), which is -20 000 and you recognize it as Debit P/L Loss from forward contract (or other classification that you use) / Cr. Liabilities from derivatives. (It’s a loss because under your forward you will still get 0.65 and not 0.67 as without forward). S.
May you please provide the accounting treatment for Foreign debtors for which forward has been taken by the company for hedging.
If we are not following the hedge accounting or following the hedge accounting, In both the cases foreign debtors will be reistated at closing rate (IAS 21) and the diff will be charged to profit and Loss.
In hedge accounting Diff of forward contract will tf to OCI but in other case diff of forward contract will tf to pl. Isn’t it good not to follow hedge accounting as in that case profit and loss on debtors and forward will tf to PL and get nullify.
In Appendix B – clause B6.2.4 of IFRS 9, it has been specifically mentioned that a written option cannot be designated as a hedging instrument unless offset by a purchased option. In case of fair value hedge of inventory or investment on hand (underlying for a derivative) suppose a written option is used to hedge the fair value – why it should not be designated as hedging instrument?
Can you please educate? Obrigado.
Just to clarify my query on fair value hedge of inventory / investment further – In either case – writing an option or buying it – premium is involved as a variable – In writing option, I gain a premium while in buying an option, I pay it – Thus both ways – there is a break even point (adding / deducting premium from strike price of a derivative) – below or above which I am protected fully – Why then – written option is not considered as a hedging instrument while buying is considered so under IFRS 9?
Our hedging documentation demonstrates that we use a critical term match approach in all our hedging activities, shoule we perform hedge effectivness testing prospectively or restropectively according to IAS 39.
Plese mention with standard reference too.
Bless you to keep up the good work.
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IAS 39 Financial Instruments: Recognition and Measurement.
IAS 39 is a standard currently under major revisions, or removal to be precise. It will be fully replaced by the new standard on financial instruments IFRS 9. If you would like to know more about this process, please read our article IAS 39 vs. IFRS 9: Clarifying the Confusion.
As a result of the replacement process, big parts of IAS 39 have already been removed and replaced by IFRS 9. Currently, companies can choose to continue reporting in line with “old” IAS 39. Therefore, this summary describes the standard IAS 39 in full, including parts replaced by IFRS 9.
IAS 39 prescribes rules for accounting and reporting of almost all types of financial instruments. Typical examples include cash, deposits, debt and equity securities (bonds, treasury bills, shares…), derivatives, loans and receivables and many others.
IAS 39 also explicitly lists what is outside its scope and thus you should look to other standards for guidance, for example interests in subsidiaries, associates etc.
Due to overall complexity of IAS 39, I decided to split this summary into several logical blocks. So let’s proceed.
Classification of financial assets and financial liabilities.
IAS 39 classifies financial assets into 4 main categories:
Financial asset at fair value through profit or loss : a financial asset that is either classified as held for trading, or upon initial recognition it is designated by the entity as at fair value through profit or loss Held-to-maturity financial investments : non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention to hold to maturity, other than: those designated at fair value through profit or loss upon initial recognition those designated as available for sale and those that meet the definition of loans and receivables Loans and receivables : non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than: those that entity intends to sell immediately or in the near term (held for trading) those designated at fair value through profit or loss upon initial recognition those designated as available for sale those for which the holder may not recover substantially all of its investment, other than.
because of credit deterioration (available for sale) Available-for-sale financial assets: non-derivative financial assets designated as available for sale.
or are not classified in any other of 3 above categories.
Financial liabilities are classified into 2 main categories:
Financial liabilities at fair value through profit or loss : a financial liability that is either classified as held for trading, or upon initial recognition it is designated by the entity as at fair value through profit or loss Other financial liabilities measured at amortized cost using the effective interest method.
However, no matter how the financial instrument would be initially classified, IAS 39 permits entities to initially designate the instrument at fair value through profit or loss (but fair value must be reliably measured).
Initial classification of financial assets and financial liabilities is critical due to their subsequent measurement.
Embedded derivatives.
Embedded derivatives became a big thing among all auditors and accountants several years ago as people started to realize that these can be found almost everywhere.
Embedded derivative is simply a component of a hybrid instrument that also includes a non-derivative host contract. Typical example is rental contract concluded for several years in advance with rental price adjustments according to inflation measured as consumer price index in European Union.
Non-derivative part in this case is a rent of some property or facility. An embedded derivative part is then forward contract indexed to the consumer price index in EU .
IAS 39 requires separation of embedded derivative from the host contract when the following conditions are fulfilled:
the economic risks and characteristics of the embedded derivative are not closely related to the economic risks and characteristics of the host contract (here, you would assess whether rent of property is somehow dependent on changes in EU consumer price index) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative the hybrid instrument (whole rental contract in our example) is not measured at fair value with changes in fair value recognized in the income statement.
Separation means that you account for embedded derivative separately in line with IAS 39 and the host contract (rent in this case) in line with other appropriate standard. If an entity is not able to do this, then the whole contract must be accounted for as a financial asset at fair value through profit or loss.
Initial recognition.
IAS 39 requires recognizing a financial asset or a financial liability in the statement of financial position when the entity becomes a party to the contractual provisions of the instrument.
It seems obvious, but the important thing is that also derivatives shall be recognized in the statement of financial position. I stress this point, because many countries do not require recognizing the derivatives as they usually have zero or very small initial costs. But—as the time passes, fair value of derivatives changes and this can have significant impact on the profit or loss and the statement of financial position, too.
Initial measurement.
Financial asset or financial liability shall be initially measured at its fair value. When financial asset or financial liability are NOT measured at fair value through profit or loss, then directly attributable transaction costs shall be included in the initial measurement.
Subsequent measurement.
As written above, subsequent measurement and the method of accounting for gains or losses from subsequent measurement strongly depend on the category of financial asset or financial liability. Subsequent measurement is summarized in the following table:
In fact, derivative financial assets and liabilities belong to category “at fair value through profit or loss”, but I show them separately for your convenience.
Impairment.
An entity shall assess at the end of each reporting period whether there is any objective evidence that a financial asset is impaired. If there is such evidence, then an entity must calculate the amount of impairment loss.
Impairment loss is calculated as a difference between asset’s carrying amount and the present value of estimated cash flows discounted at the financial asset’s original effective interest rate. Impairment loss shall be recognized to profit or loss account.
Reversal of the impairment loss is possible, but only if in a subsequent period the impairment loss decreases and the decrease directly relates to some event occurring after the recognition of impairment loss. Reversal shall be re recognized in profit or loss.
Derecognition of a financial asset.
Standard IAS 39 provides extensive guidance on derecognition of a financial asset. Before deciding on derecognition, an entity must determine whether derecognition is related to:
a financial asset (or a group of similar financial assets) in its entirety , or a part of a financial asset (or a part of a group of similar financial assets). The part must fulfill.
the following conditions (if not, then asset is derecognized in its entirety):
the part comprises only specifically defined cash flows from a financial asset (or group) the part comprises only a fully proportionate (pro rata) share of the cash flows from a financial asset (or group) the part comprises only a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or group)
An entity shall derecognize the financial asset when:
the contractual rights to the cash flows from the financial asset expire, or an entity transfers the financial asset and the transfer qualifies for the derecognition.
Transfers of financial assets are discussed in more details. First of all, an entity must decide whether the asset was transferred or not. Then, if the financial asset was transferred, the entity must determine whether also risks and rewards from the financial asset were transferred.
Was the financial asset transferred?
An entity transfers a financial asset if either the entity transfers the contractual rights to receive the cash flows from a financial asset, or the entity retains the contractual rights to receive the cash flows from the asset, but assumes a contractual obligation to pass those cash flows on (or to pay these cash flows to one or more recipients) under an arrangement that meets the following conditions:
the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the original asset the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient) the entity has an obligation to remit any cash flows it collects on behalf of eventual recipients without material delay.
Were the risks and rewards from the financial assets transferred?
If substantially all the risks and rewards have been transferred, the asset is derecognized. If substantially all the risks and rewards have been retained, the entity must continue recognizing the asset in its financial statements.
If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has retained control of the asset or not.
If the entity does not control the asset then it must derecognize the asset. But if the entity has retained control of the asset, then the entity continues to recognize the asset to the extent of its continuing involvement in the asset.
Transfers of financial assets are then discussed in much greater detail in IAS 39 and also, application guidance in paragraph 36 summarizes derecognition steps in a simple decision tree. You can familiarize yourself with the decision tree in the video below this summary.
Derecognition of a financial liability.
An entity shall derecognize a financial liability when it is extinguished. It is when the obligation specified in the contract is discharged, cancelled or expires.
Hedge accounting.
In this short summary I do not intend to explain what hedging is and how it works. But I can promise to do it with some good example in some future article. Here, I just want to sum up what IAS 39 says about hedging.
IAS 39 allows hedge accounting only if all the following conditions are met:
hedging relationship is at its inception formally designated and documented, together with entity’s risk management objective and strategy for undertaking the hedge the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk (consistently with the documentation) for cash flow hedges: a forecast transaction must be highly probable and must present exposure to variations in cash flows (which can affect profit or loss) the effectiveness of the hedge can be reliably measured the hedge is assessed on an ongoing bases and determined actually to have been highly effective.
IAS 39 then describes the rules for 3 types of hedging: fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation.
A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset, liability or a previously unrecognized firm commitment that is attributable to particular risk and can affect profit or loss. The gain or loss from the change in fair value of the hedging instrument is recognized immediately in profit or loss. Also, an entity should adjust the carrying amount of the hedged item for corresponding gain or loss from the hedged risk—this adjustment shall be recognized to profit or loss, too.
A cash flow hedge is a hedge of the exposure to variability in cash flows that could affect profit or loss and is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. Here, that portion of the gain or loss on the hedging instrument that is determined to be an effective shall be recognized to other comprehensive income. Ineffective portion shall be recognized to profit or loss. IAS 39 then prescribes rules for accounting when a forecast transaction subsequently results in recognition of a financial or non-financial asset or liability.
A hedge of a net investment in a foreign operation is accounted in the similar way as a cash flow hedge.
IAS 39 also specifies when hedge accounting shall be discontinued prospectively:
when the hedging instrument expires or is sold, terminated, or exercised, or when the hedge no longer meets the criteria for hedge accounting, or when the forecast transaction is no longer expected to occur, or when the entity revokes the hedge designation.
Standard IAS 39 addresses all issues in a greater detail and contains application guidance, because it really is very complex and tough standard. I have summarized it also in the following video:
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122 Comments.
great summary, answered lots of questions.
This is a must read article for clear and concise knowledge. Obrigado.
hi, which category out of the four for financial assests is the most commonly used for insurance companies ? and why?
i would say AFS P&L.
well, it does not really matter whether the company who classifies financial assets is insurance company or not. Insurance companies classify their financial assets exactly in the same way as any other company – so it depends whether the entity aims to hold the asset to maturity or not; whether the asset is a loan / receivable or not and other.
Yes, I too agree with u, because it depends on the intention of the company.
Insurance companies specifically life companies do invests significantly in fixed maturity quoted instruments and we can have either keep them at HTM or AFS depending on management decision and intentions.
Kindly explian how to designate a subsidiary low interest loan in the holding compay’s seperate financial statement and if it’s apporopriate to record it as investment so fair value can be avoide.:)
please clarify the question: are you asking about the below-market rate loan that was provided by parent company to subsidiary? And also, what standard are you following – IAS 39 or IFRS 9?
Anyway, if we talk about separate financial statements, loans are basically measured at amortized cost (if not designated at fair value), even if they are below-market rate. However, you should always measure financial assets at fair value initially (plus transaction cost in this case) – so at initial measurement, you can never avoid fair values. And no, you cannot record this loan as “investment” and measure it at cost as it is not an equity instrument.
Muito obrigado! However, I’d like very much if you could check my consideration in your example on youtube/watch? v=1MPj2eIGHi0&hd=1.
About the entry at last for the case when asset held at Fair value; I think that the interest income received should be recognized on P/L and therefore does not affect the FV of asset, right? At year end of 20z3, we just have to compare the FV 125.584 and FV2: 127.500…
That’s what I’ve known. Please help me check them!! Obrigado!
either way you do, the effect on P/L is the same, isn’t it?
FV2 at 125 584 is before paying the coupon at the end of 20Z2 (or beginning of 20Z3); FV at 127 500 is AFTER paying the coupon, so we recognized coupon payment as decrease in receivable from bond to be consistent.
The thing is that IFRS give really little guidance on how gains and losses should be disaggregated. I always prefer to treat cash payment of coupon as decrease in bond asset and then compare fair values AFTER coupon – in this case, P/L effect is 8 416 as per example.
According to you, interest income is 6 500 plus change in FV is 1 916 (127 500 less 125 584) – add it up and you’ll still have the same P/L effect of 8 416.
Your video was perfect fro the basics on hedge accounting . But I’m struggling to grasp the finer concepts such as IAS 39 para 93 and 94. Along with the application of the different types of hedges in the financial statements. Do you think you could do a video with an example to help us understand these.
Many thanks Michael.
currently, I am working on the course about financial instruments including hedging, so finer items will be covered there. But of course, I plan to add free videos related to basic understanding of hedging principles.
Best regards, Silvia.
Re IAS 39 I am a student trying to understand the derecogntion tests. Please clariify if the financial asset remains on balance sheet because it does not meet the criteria for a “Transfer” how is the consideration received by the entity for the transaction treated under the standard. There is no specific provision that states that the consideration be treated as an imputed loan i. e para 29 (risk and rewards test) of para 31 (continuing involvement)
The consideration received is basically a liability, of course. The provisions related to financial liabilities arising from failed derecognition of financial assets say that you need to recognize an interest expense on your liability in the subsequent periods (if there is any). Also, there are specific provisions related to continuing involvement accounting, but it’s quite impossible to cover this topic in the comments’ seção. I covered it fully in my course about financial instruments. Silvia.
Your style of teaching is unique. God bless you for this wonderful piece.
Oi. I would like to ask with regards to loans and receivables, should we amortized the service charges deducted from loan proceeds over the term of the loan using EIR method like how the principal and interest are computed?
Hi Michelle, basically you’re right. S.
My company has an embedded derivative which is a foreign currecncy denominated convertible loan. It is carried at fair value leading to huge varaiations in PL.
is their any way that such variations are eliminated?? if yes, how.
Dear Hassan, of course there is a way to eliminate it – for example, taking some fair value hedge. S.
Thanks for such a wonderful teaching! You are just AWESOME 🙂 I am a big fan of yours!
Thank you so much 🙂 In fact, I love your quote and I’ll use it on my web 🙂
Thank u so much for this video and summary. I would like to ask with regards to loans and receivable, can you have me to answer this question ” identify, with reason how trade account receivable will be disclosed.
and measured accordance with IAS 39″ plz. Obrigado.
trade receivables are in most cases classified as “loans and receivables”in line with IAS 39. They are measured at amortized cost. The reason is that they were generated in the normal course of business and serve as a medium of money collection rather than for capital / trading purposes. They are not quoted on the active market and the payments are determinable in advance. Espero que ajude. S.
Thank u so much 😀
My company applies fair value hedge accounting with financial liabilities. Should these liabilities been classified as financial liabilities in the group: fair value through profit/loss or in the group Amortised costs.
Obrigado pela sua resposta.
Hi Glenn! Yes, you can measure these financial liabilities at amortized cost. But in this case, application of hedge accounting is more complicated than if you carry these liabilities at fair value. The reason is that any gain or loss on hedged item shall adjust the carrying amount of that item (=your liabilities), and you literally amortize this difference to profit or loss (based on recalculated effective interest rate at the date of starting the amortization). Quite complicated, but your choice. Espero que ajude! S.
What would happen if an AFS financial asset was impaired down to zero, but in subsequent years a cash recovery was received – how would this be treated?
Could this be treated as a recovery through the impairment line, or as a realised fair value gain?
Hi Mary, please could you clarify a bit? What kind of asset was that? You received the cash and then what happened? Did you derecognize the asset? Or its part?
If you derecognize the asset, then it’s more appropriate to recognize profit from sale / disposal, rather than reverse the impairment loss. If the asset stays in your accounts and reasons for impairment no longer exist, then you can reverse impairment loss to P/L.
My company had invested in securities in one of the company. Company is not listed and we have recognized under AFS . It is unquoted securities.
We had done provision as no activities had been there from long time. Recently I have received its audited financials and last financial year there loss has been reduce as compare to previous year.
So my question can we reversed the provision as investment is active and show sign of improvement.
Hi Raj, I don’t know exactly about your transaction and how you recognized the provision, but I guess you talk about the impairment. Well, IAS 39 explicitly states that you cannot reverse an impairment loss related to equity instruments like shares. S.
Thank you for the summarized piece.
When a receivable has been derecognized due to uncertainty in collection. How should it be treated if it was later collected?
receivable should not have been derecognized due to uncertainty in collection, because in this case, rules for derecognition were NOT met. Instead, a company should have recognized a bad debt adjustment. S.
Our company intends to treat loan and advances as Financial assets as per IAS 39. I need your help to apprise me the procedure and really appreciate if you send me schedule and journal entries of following scenario.
Loan amount US$ 2 Million interest rate 3% p. a. and effective rate of interest 7% and loan period is 5 years. Looking forward your reply. Muito Obrigado.
If Insurance company is required to classify all investment as held to maturity as per law. Whether they can hedge their liabilities under IAS 39. What the provisions.
Mahesh Agarwal, India.
Hi Mahesh, yes, they can 🙂 S.
I would like to obtain some clarification in respect of offsetting of financial assets and financial liabilities. Could you please tell me if loan granted by a bank could be offset against the savings account held with the same bank and presented as a net liability in the statement of financial position. Is this allowed under IFRS 9/7?
No, you cannot offset these 2. S.
Obrigado. You are very helpful.
How do you account for clean up call options?
An originating company (company A) has receivables which it securitises by transferring them to a securitisation entity (company B). Assume that derecognition criteria from the point of vie of company A has been met and as a result all these receivables are on company B’s balance sheet. company A services these receivables on behalf of company B at a fee based on an arms length basis.
A call option (the clean up call) is in place for company A to buy back the receivables once they reach the mark of 10% of the initial transfer value. Note this is a one way option. This contact is in place because of the fact that in future the cost of servicing B’s receivable will be higher than the benefit, therefore as a cost efficient measure.
Is this an embedded derivative?
How does company A count for the call option?
Does accounting vary depending on how far away we are from the 10% mark?
Many thanks in advance for your response.
Hi Tammy, yes, call option is an embedded derivative in your sales contract, however, from what you wrote, I have doubts that derecognition criteria related to receivables were met.
It’s difficult to reply to your questions in the comment, as it’s quite complex issue. You need to assess whether you really need to separate embedded derivative from the host contract – please revise separation criteria in IAS 39/IFRS 9 (based on what you apply).
Then if separation criteria are met, you need to set the fair value of this option and account for the option at fair value through profit or loss (as for any other derivative). Again, it’s quite difficult as you need to apply option pricing models or alternative ways. And yes, intrinsic value of the option will depend on how close you’re to surpassing 10% mark.
Hope it helps a bit.
I am very grateful for your response. I do understand the complexity of the scenario but your response has give me pointers and confirmed some of my thought.
With regards to accounting for the call option (second question), if it was concluded that the separation criteria were not met, does that mean it is assumed that the value of the receivables does includes the value of the derivative?
Many thanks again and your response is very much appreciated.
hm, I would rather say that the transfer price for these receivables should reflect the value of a derivative – otherwise, the receivables were not transferred at fair value.
Hi Silvia, If for example a company signs legal agreements(including share purchase agreement, shareholders agreement) in order to acquire shares/convertible debt in the target firm on say 30th September but the funds to acquire those shares are paid on 1st October when can the company record the investment in its statement of financial position? Would it be 30th or 1st? On the 30th the company would not yet have released the funds so I was wondering when the asset recognition should take place, and if a financial liability has been created by signing the legal agreements on 30th September?
this is a financial instrument and it should be recognized as soon as the entity becomes a party of contractual provisions of that instrument. Therefore – 30th September. S.
Obrigado por esclarecer.
Thanks for the wonderfull explanation.
Can a Equity investment in non functional currency be hedged.
If yes, than how is the fair value gain/loss shall be accounted.
Hi Mayur, yes, why not? In such a case, I would say it’s a fair value hedge. S.
Obrigado pela sua resposta.
Equity investment, being a non monetary asset will be carried at historical cost of conversion from non functional currency according to IAS 21.
But there is exception in IAS 39 with regard to carrying Equity investments at Fair value (spot rate).
Just want to know that under what circumstances this option can be availed.
A financial asset is an asset that is a contract that will or may be settled in the entity’s own equity instruments and is:
a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments.
What is meant by entity’s own equity instrument ?
for example, it is an entity’s own share (not the share of some other entity), or entity’s own warrants or any other instruments that are booked to equity. S.
Obrigado por sua resposta.
will u please help me to understand this sentence . ”A financial asset is an asset that is a contract that will or may be settled in the entity’s own equity instruments and is:
a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments”
Hi Sylvia. Please what is the right treatment for amount deposited for shares by a sole shareholder in a financial institution. Is it allowed to treat it under equity & reserves or under liability.
did you mean the situation when the sole shareholder pays up for the share capital of the new company? S.
What of a scenario where a shareholders makes payment for shares but the shares have not been issued to him or he decides to defer the allotment of his shares to a latter date but doesn’t ask for a refund of his money? How do you treat this - equity or liabilities?
It all depends on the specific agreement/arrangement. However, I would say it’s a liability until the shareholder clearly makes a decision about allotment of shares. S.
Hi Silvia, if a company issued a convertible bond to its investor with a redemption option, in other word, the company can redeem the convertible bond at anytime before the maturity date, is the redemption option an embedded derivative? should it be treated as a derivative financial asset separately?
Hi Iris-Ann, what you described, is a typical compound financial instrument with both equity and liability component. I have written an article about it some time ago, so you might check it here: ifrsbox/how-to-account-compound-financial-instruments-ias-32/
Accounting for changes in classification from FVPL-HFT to AFS my question is;
if i prepare the accounting entries for the reclassification should i includes the realized trading gains/losses and interest earned Or it will retain to FVPL-HFT category.
Hi Silvia, If a parent company collects a loan at market rate in its own name but transferred it to its subsidiary at no cost. How will the loan be treated in the books of the parent company and subsidiary.
Thanks for the swift response.
Well, if it’s a market rate at which the loan is transferred, then I don’t see any problem with the fair values. Just be careful with the cost of acquiring loan – if subsidiary effectively takes this cost, then you simply recognize subsidiary’s liability and parent’s receivable to subsidiary + parent’s liability to bank (however, take this as a guidance only – I would need to see the contract to make reliable conclusion).
Obrigado pela resposta. The loan papers carry the name of the parent company as obligor. This was obatined in its name because the subsidiary is a new company and is yet to have that capacity to secure facility from the bank.
My concerns which I need your input are as follows;
1. Who will recognize the loan in its book. Is it the parent or sub?
2. If its the parent, can it transfer the cost of the loan and the full loan value to the sub?
3. What will be the accounting entries for 2 above.
4. Who recognizes normal and effective interests?
Entendo. Basically, parent can’t get rid of the loan, because it will still be liable to the bank – this does not qualify for derecognition and parent keeps recognizing the loan.
As a result, there are 2 separate relationships: 1) loan between the bank and parent, 2) loan between the parent and a subsidiary. Each of them should be treated separately, based on the nature of agreements.
For the remaining answers, I can’t give you responsible answer and I haven’t seen the papers and I will never guess. But the above should give you hints. 🙂
Muito obrigado. You are a darling!
Can derivatives be classified as AFS or are they always at FVTPL?
what is the meaning of Incurred loss model under IAS 39 ? ,
You account only for the losses that have already incurred and not the losses that you expect to incur based on the past experience/statistics (as in IFRS 9). S.
Hi, I have a question about transaction cost under IFRS 3 (business combination) and IFRS 39.
You stated that under IFRS 39, When financial asset or financial liability are not measured at fair value through profit or loss, then directly attributable transaction costs shall be included in the initial measurement.
When you said “included in the initial measurement”, did you mean to add the transaction cost to the carrying value or deduct against the carrying value?
Also, under IFRS 3, is the cost to issue equity securities added to the capital stock or deducted against the capital stock?
Obrigado pela ajuda.
under IAS 39, if your financial instrument is not at FVTPL, then the initial measurement is its fair value + transaction cost.
Transaction cost to issue own equity stock – it’s deducted from equity as soon as it’s incremental to the issue (it would not have been incurred without the issue of stock) – please refer to IAS 32 para 37.
Obrigado. Just to confirm on the transaction cost under IAS 39, if it’s a financial asset that isn’t measured at FVTPL, transaction cost is added to the financial asset, while if it’s a financial liability that isn’t measured at FVTPL, transaction cost is deducted from the financial liability, right?
Can the same security be held by an institution in both AFS book and Trading book?
Are there any restrictions or concerns under IFRS?
IFRS 9 states that there are different ways of measuring a financial asset, which are:
1. Amortised Cost.
2. FV through P&L.
3. FV through OCI.
Can you please highlight what is meant by recognizing an asset at amortised cost, at FV through PL and OCI? How do we recognize an asset at FV through P&L? and at OCI?
Hi, Silvia, Thanks for simple explanation of difficult issues. The illustrations are brilliant. It helps a lot.
Eu tenho uma pergunta. A subsidiary buys a financial instrument (doesn’t matter bond or equity) from its parent. Under IFRS 9 the instrument will be classified as FVOCI. But there is a difference at initial recognition between the FV and the transaction cost. Can we account this difference to OCI, or it must be PV? My friend says it’s OCI since it’s an instrument from shareholder, but I can’t find the legal answer in IFRS/IAS.
Can you advise on how to book a bond purchased at a discount please.
How would you account for semi-annual premium on redemption on debentures receivable by the investors.
If the equity holder provides long term loan for company operation than Is it necessary to be discounted and charge the amount as revision in retained earning?
It seems that the loan would be a financial liability and the interest is charged in profit or loss (if held at amortized cost). It does not matter whether it’s from an equity holder or not. S.
Hi Sylvia Good Day.
Our company is a bank( giving credit to client)
We entered to a financial guarantee contract for 10 yrs, wherein company X will be the guarantor.
The contract price for 10 yrs is $35.000.000.
In the first year we need to pay $175.000 and for the succeeding years we need to pay 1/2 of 1% of all the outstanding loan of the client.
My question is, what is the treatment of $175.000 that i pay for the first year, and the payment for the succeeding years? and what IFRS im goinhg to apply.
Muito obrigado!!
What method of accounting im going to use. IFRS 9 or 4 talks about on the side of the guarantor, how about on the part of the company who is guaranteed? Is it a financial asset or liabilities? I think its an asset for us,
Colleagues , comments are welcome.
Oi. Can financial assets at FVTPL be subject to impairment. Obrigado.
Can you explain to me if netting off management fee arising from an investment against the investment income from same investment is allowed in presenting IFRS compliant financial statement?
Dead D1, in fact, IFRS permits netting off only at some circumstances. In your case – it depends on your activities, but if investment income is not material and is not a primary activity, then you can net off. S.
What is the treatment of an interest-free loan payment date of which is uncertain?
Company A provided its subsidiary with an interest-free loan which will be payable at some point in time in future. Company A has not demanded the loan from last 3 years and it is expected that it will not demand it in foreseeable future.
How should Company A and Company B account for such a transaction?
this is difficult as the cash flows are not set in this case. Can you at least assume that this loan is repayable on demand? In this case, you would not need to discount it. If it cannot be repayable on demand, you should discount it over the minimal period over which a lender can demand its repayment. S.
Making this assumption is the only choice then I suppose.
It is in substance an investment and not a loan as it is interest free and the investor will not demand repayment. Provided that such intention is communicated to the subsidiary, the loan in effect is an investment (substance over form). When this treatment is applied it should be disclosed in the accounting policies.
Outra pergunta. Do we have to amortise a one-year interest-free loan obtained for building/constructing/acquiring a qualifying asset (according to IAS 23: Borrowing Costs)?
I have raised a liability that has incurred transaction costs. I want to write the costs off to the income statement at the start of the loan rather than capitalise and amortise them over the loan period. Is there scope in the standard to allow me to do this.
you can put your transaction cost into the P/L rather than amortize them together with the liability – it’s when you decide to classify your financial liability at fair value through profit or loss at initial recognition. But, you need to do it at initial recognition. S.
Hello Silvia! Thank you so much for this site, it has really been helpful. 🙂
I’m having great difficulty with a question and I hope you would be able to assist me.
On 1 January 2013, Bank Alpha takes a five-year deposit from a customer with the following rates of interest specified in the agreement: 2% in 2013, 2.1% in 2014, 2.2% in 2015, 2.4% in 2016 and 3% in 2017.
Supposing the customer exercises his option to withdraw the deposit after four years without any penalty, at what rates should interest expense be accrued by Bank Alpha in each of the deposit years?
Any relevant FRS-es would help 🙂
I would like to ask regarding the directly attributable transaction cost. Does this include value added taxes and sales taxes?
This site has been very helpful. Obrigado por isso. 🙂
it depends on whether these taxes are claimable from the tax authorities or not. For example, if you are a VAT payer and you are able to claim VAT paid back in your tax return, then no, it’s not a part of acquisition cost. But, if you are not a VAT payer and you are not able to claim VAT, then yes, VAT is a part of an acquisition cost.
However, are we talking about PPE here? As you posted this question under financial instruments and I’m not sure what VAT is applicable here. S.
Thanks Miss Sylvia. Your response is very helpful. I’m talking about Available for Sale financial assets. Well, your reply has given me a lot of information. Obrigado por isso. 🙂
Company applies CF hedge on its variable liabilities (IAS 39). The hedged risk is changes in the Libor.
The liabilities pay Libor plus margin, subject to an embedded zero floor on the total interest including margin (ie no interest is charged to the lenders in any case). Floor is out of the money at initial recognition , thus not bifurcated.
Company designates receive – variable (Libor)/ pay - fixed as CF hedge. Swap has no floor.
Ineffectiveness arises when Libor plus margin <0 because swap pays on both legs while the liabilities don’t bear interest. Can Company ignore the time value of the embedded floor and only recognise ineffectiveness when the floor is actually in the money?
Thank you soo much.
What are the Effective Interest Rate (EIR) and Amortised Costs (AC) for an Avalaible for Sale (AFS) security in the table below ?
ID_INSTRUMENT ID_TRANSACTION VALUE_DATE SETTLEMENT_DATE QUANTITY FACE_VALUE SETTLEMENT_AMOUNT PRICE CLEAN_FLAG.
sec_afs_1 1 2/15/13 -100 0.9 1.
sec_afs_1 2 3/15/13 60 0.89 1.
sec_afs_1 3 3/31/13 -40 0.93 1.
sec_afs_1 4 3/31/13 50 0.95 1.
Can the classification available for sale also be called as held for trading (while going through frs 39 - I got this query)
How is deposit for shares treated in the financial statements.
Is there any guidance, as to if we can chose not to use the Effective Interest Method for calculation of interest income on Assets Held under Fair Value Through PL (FVTPL)
Mohamed, once you select FVTPL, you do NOT apply the effective interest method. You do fair value changes. S.
Thanks for the wonderful video, I want to understand whether the de recognition mechanism has changed under IFRS 9 or is it the same as IAS 39. Also can you give me an example of how recognising a financial asset has changed from IAS 39 to IFRS 9 for all the 3 classifications.
Muito bem adiantado.
Jain, that would require more elaborate answer than in one comment 🙂 S.
We have invested in foreign operation (in shares ) and we have entered into agreement in this financial year. But we made our investment partially and one part will be invested in next FY.
1.How do we record this in current Financial year ?
2.Can we revalue this end of current FY.
it depends precisely on the contract conditions, but let’s say that you gain a control over your shares when you pay (shares are transferred after payment). Then you account for this as 2 acquisitions. If it’s in a foreign currency, then it’s a non-monetary asset. The subsequent measurement depends on the classification of your assets, but in most cases, yes, you do revalue at fair value. S.
It depends of the nature of the investment and its category.
Regarding the part that will be invested next year, no recognision should be made in current year but a disclosure note will be enough i think.
Hi Silvia. Ótimo post.
Speaking on Amortised Cost Measurement, I would like to know specific examples of transaction fees that are required and not required to be amortised when carrying out the valuation of the financial instruments. I am aware that there are one-off fees and there are periodic fees paid or received (which arose as a result of the creation of the instrument). Is the amortised required on only one-off fees or periodic fees or both? Can you give specific examples of fees required or not required to be taken into consideration when carrying out such measurement?
Hi Silvia. Ótimo post.
Speaking on Amortised Cost Measurement, I would like to know specific examples of transaction fees that are required and not required to be amortised when carrying out the valuation of the financial instruments. I am aware that there are one-off fees and there are periodic fees paid or received (which arose as a result of the creation of the instrument). Is the amortised required on only one-off fees or periodic fees or both? Can you give specific examples of fees required or not required to be taken into consideration when carrying out such measurement?
For assets and liabilities at FVTPL, each period they are revalued to unrealized gains/losses. Then in the period sold , there will be a realized gain for the difference between the most recent fair value and proceeds. So assume that the last several periods recorded an unrealized gain each period on this particular asset when it’s sold, do those unrealized gains somehow get reclassified to realized gains ? Like debit unrealized gain(to clear previous P&L entries) and then credit realized gain? That seems more like OCI accounting. But I guess I just thought that the “realized gain” on P&L should somehow be proceeds less original cost ?
I need to say that these “unrealized” differences in the past periods were recognized in profit or loss – it means, that they were in fact realized. As a result, when you sell an asset, any gain or loss is recognized in P/L, an asset is derecognized and that’s it. S.
My Company borrowed funds from a financial institution and the contract stipulates that some fees would be paid upon maturity of the facility. I have not treated it as a transaction cost as I could not find any reference in the standard to fees paid in arrears. The Auditor is insisting that the payable fees is a transaction cost and has factored it into the amortised cost computation.
What is your view on this treatment?
If an investment is measured at FVTPL I see transaction costs on measurement are not capitalised.
How about transaction costs upon sale? Would these reduce the realised gain? Or would they be expenses separately in P/L?
Hi Seb, yes, they reduce the gain on sale. S.
I wanted to find a Company gave its employees house loans some years back at a Lower interest rate that was prevailing over time. However the rates have changed in the market as they have drastically increased. What should they do. Should the Loans be revalued to show fair value to current rates being used by the Banks.
can an investment in subsidiary be classified in investments but valued at FVTPL? only asset of sub company is investment in a fund.
In individual investor’s financial statements – sim. However, unless the investor is an investment entity and meets the exception criteria as per IFRS 10, then you need to consolidate.
how to account for a loan discharge? Loan had a collateral, and with the discharge, collateral has been removed (buildings), so there is no obligation toward the bank and the property is not pledged anymore.
a company bought receivables, that were secured by a collateral. The fair value of the collateral is much higher than the price the company paid for receivables. How to account for the transaction? And what if the receivables were not paid when due, and the company has to sell collateral for the price much higher than the receivables were paid for?
Can you sharing with me about ifrs 9 “financial Asset Loans and receivables”?, what your advice about “deposit rent”?
Thaks Very Much Before…
if impairment loss arises consecutively in two years after that there is gain. then which loss would be reversed. either loss for current year in which gain arise or both years loss commulatively.
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Ias 39 fx options

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IFRS 9: Why It’s Time to Revisit Hedging.
World events over the last 18 months have resulted in some significant currency movements – and many European companies have suffered as a result. Deutsche Telekom, for example, reported that net profit was down 18% last year when the company’s stake in BT lost value “mainly as a result of a fall in BT’s share price and in the pound sterling following the Brexit referendum.” Meanwhile, EasyJet reported pre-tax losses of £212m in the first half of this year, largely due to the weaker pound.
These developments have underlined the importance of managing risk effectively: a suitable hedging strategy can mitigate the impact of movements in FX, commodities and interest rates. In practice, many companies decide against hedging, not least because of the complexities involved in hedge accounting. However, all of this is changing with the arrival of IFRS 9 – and companies which have previously held back should consider whether it’s time to hedge.
The objective of hedging is to achieve predictability over the company’s cash flows by gaining certainty about the impact of FX, interest rate and commodity movements. Failing to hedge can leave companies at a competitive disadvantage if their competitors have effective hedging programmes in place. But despite the many reasons for hedging, many treasurers decide not to do so.
There are a number of reasons why companies might decide against hedging. One is expense: the cost of using derivatives can be considerable, as can the cost of the people and technology needed to support a hedging programme. Treasury teams may also lack the in-house expertise needed to make hedging decisions with confidence. Aside from these factors, the difficulties involved in achieving hedge accounting and the costs involved in complying with the relevant rules can be a major consideration for companies when deciding whether or not to hedge.
The good news is that upcoming accounting rule changes make it easier for companies to hedge effectively. IFRS 9 Financial Instruments was issued in 2014, and the mandatory adoption date for the new accounting standard is 1 st January 2018. IFRS 9 replaces IAS 39, which has been widely criticised as overly complex.
The new standard is expected to bring considerable benefits:
Compared to IAS 39, IFRS 9 makes hedge effectiveness testing simpler. Under the previous rules, hedge accounting could only be applied if the results of the hedge fell within an effectiveness range of 80-125%. This is no longer the case under IFRS 9, which focuses on the economic relationship between the hedging instrument and the item being hedged. Companies will be able to manage commodities exposures more effectively, enabling them to avoid profit and loss volatility. The new standard also brings benefits for FX and interest rate options, as some of the hurdles associated with IAS 39 have been removed.
As a result, IFRS 9 enables treasurers to hedge more effectively with less back office complexity, as well as enabling a company’s risk management objectives to be better aligned with the accounting treatment of a hedge.
Risk management solutions.
The arrival of IFRS 9 means that hedging may be more attractive for treasurers who haven’t hedged until now – or who have hedged only to a limited degree. A hedging programme can have a considerable impact on the financial health of a company. But first of all, it’s important to have the right tools in place.
The good news is that modern treasury management and risk management solutions make hedge accounting more accessible than in the past. As well as analysing the effectiveness of hedges under IFRS 9, today’s sophisticated solutions can support the full workflow, including hedge definition, effectiveness testing and generating accounting entries. Technology can help in different ways:
Valuation . With scheduled reporting and in-built market data, risk management solutions can help companies calculate the change in value for a derivative over the current period. Documentation and reporting. Technology helps companies document their hedging relationships, for example by including templates and enabling relevant documents to be attached in support of the hedge. Effectiveness testing. Technology can simplify the processes involved in performing effectiveness testing. Create accounting entries. Systems also use accounting engines to create journal entries from valuations and effectiveness testing. This includes splitting which portion of a company’s unrealised gains and losses are effective and which are ineffective.
In summary, recent turbulence has underlined the need for companies to hedge their exposures. For companies which have avoided hedging in the past, it’s never too late to start. IFRS 9 provides a compelling opportunity to revisit the benefits of hedging, while today’s cloud-based systems means that hedge accounting technology is more affordable than it used to be.
Simply put, using the right technology can make the difference between wanting to hedge – and actually doing it.
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IAS 39 Financial Instruments: Recognition and Measurement.
IAS 39 is a standard currently under major revisions, or removal to be precise. It will be fully replaced by the new standard on financial instruments IFRS 9. If you would like to know more about this process, please read our article IAS 39 vs. IFRS 9: Clarifying the Confusion.
As a result of the replacement process, big parts of IAS 39 have already been removed and replaced by IFRS 9. Currently, companies can choose to continue reporting in line with “old” IAS 39. Therefore, this summary describes the standard IAS 39 in full, including parts replaced by IFRS 9.
IAS 39 prescribes rules for accounting and reporting of almost all types of financial instruments. Typical examples include cash, deposits, debt and equity securities (bonds, treasury bills, shares…), derivatives, loans and receivables and many others.
IAS 39 also explicitly lists what is outside its scope and thus you should look to other standards for guidance, for example interests in subsidiaries, associates etc.
Due to overall complexity of IAS 39, I decided to split this summary into several logical blocks. So let’s proceed.
Classification of financial assets and financial liabilities.
IAS 39 classifies financial assets into 4 main categories:
Financial asset at fair value through profit or loss : a financial asset that is either classified as held for trading, or upon initial recognition it is designated by the entity as at fair value through profit or loss Held-to-maturity financial investments : non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention to hold to maturity, other than: those designated at fair value through profit or loss upon initial recognition those designated as available for sale and those that meet the definition of loans and receivables Loans and receivables : non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than: those that entity intends to sell immediately or in the near term (held for trading) those designated at fair value through profit or loss upon initial recognition those designated as available for sale those for which the holder may not recover substantially all of its investment, other than.
because of credit deterioration (available for sale) Available-for-sale financial assets: non-derivative financial assets designated as available for sale.
or are not classified in any other of 3 above categories.
Financial liabilities are classified into 2 main categories:
Financial liabilities at fair value through profit or loss : a financial liability that is either classified as held for trading, or upon initial recognition it is designated by the entity as at fair value through profit or loss Other financial liabilities measured at amortized cost using the effective interest method.
However, no matter how the financial instrument would be initially classified, IAS 39 permits entities to initially designate the instrument at fair value through profit or loss (but fair value must be reliably measured).
Initial classification of financial assets and financial liabilities is critical due to their subsequent measurement.
Embedded derivatives.
Embedded derivatives became a big thing among all auditors and accountants several years ago as people started to realize that these can be found almost everywhere.
Embedded derivative is simply a component of a hybrid instrument that also includes a non-derivative host contract. Typical example is rental contract concluded for several years in advance with rental price adjustments according to inflation measured as consumer price index in European Union.
Non-derivative part in this case is a rent of some property or facility. An embedded derivative part is then forward contract indexed to the consumer price index in EU .
IAS 39 requires separation of embedded derivative from the host contract when the following conditions are fulfilled:
the economic risks and characteristics of the embedded derivative are not closely related to the economic risks and characteristics of the host contract (here, you would assess whether rent of property is somehow dependent on changes in EU consumer price index) a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative the hybrid instrument (whole rental contract in our example) is not measured at fair value with changes in fair value recognized in the income statement.
Separation means that you account for embedded derivative separately in line with IAS 39 and the host contract (rent in this case) in line with other appropriate standard. If an entity is not able to do this, then the whole contract must be accounted for as a financial asset at fair value through profit or loss.
Initial recognition.
IAS 39 requires recognizing a financial asset or a financial liability in the statement of financial position when the entity becomes a party to the contractual provisions of the instrument.
It seems obvious, but the important thing is that also derivatives shall be recognized in the statement of financial position. I stress this point, because many countries do not require recognizing the derivatives as they usually have zero or very small initial costs. But—as the time passes, fair value of derivatives changes and this can have significant impact on the profit or loss and the statement of financial position, too.
Initial measurement.
Financial asset or financial liability shall be initially measured at its fair value. When financial asset or financial liability are NOT measured at fair value through profit or loss, then directly attributable transaction costs shall be included in the initial measurement.
Subsequent measurement.
As written above, subsequent measurement and the method of accounting for gains or losses from subsequent measurement strongly depend on the category of financial asset or financial liability. Subsequent measurement is summarized in the following table:
In fact, derivative financial assets and liabilities belong to category “at fair value through profit or loss”, but I show them separately for your convenience.
Impairment.
An entity shall assess at the end of each reporting period whether there is any objective evidence that a financial asset is impaired. If there is such evidence, then an entity must calculate the amount of impairment loss.
Impairment loss is calculated as a difference between asset’s carrying amount and the present value of estimated cash flows discounted at the financial asset’s original effective interest rate. Impairment loss shall be recognized to profit or loss account.
Reversal of the impairment loss is possible, but only if in a subsequent period the impairment loss decreases and the decrease directly relates to some event occurring after the recognition of impairment loss. Reversal shall be re recognized in profit or loss.
Derecognition of a financial asset.
Standard IAS 39 provides extensive guidance on derecognition of a financial asset. Before deciding on derecognition, an entity must determine whether derecognition is related to:
a financial asset (or a group of similar financial assets) in its entirety , or a part of a financial asset (or a part of a group of similar financial assets). The part must fulfill.
the following conditions (if not, then asset is derecognized in its entirety):
the part comprises only specifically defined cash flows from a financial asset (or group) the part comprises only a fully proportionate (pro rata) share of the cash flows from a financial asset (or group) the part comprises only a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or group)
An entity shall derecognize the financial asset when:
the contractual rights to the cash flows from the financial asset expire, or an entity transfers the financial asset and the transfer qualifies for the derecognition.
Transfers of financial assets are discussed in more details. First of all, an entity must decide whether the asset was transferred or not. Then, if the financial asset was transferred, the entity must determine whether also risks and rewards from the financial asset were transferred.
Was the financial asset transferred?
An entity transfers a financial asset if either the entity transfers the contractual rights to receive the cash flows from a financial asset, or the entity retains the contractual rights to receive the cash flows from the asset, but assumes a contractual obligation to pass those cash flows on (or to pay these cash flows to one or more recipients) under an arrangement that meets the following conditions:
the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the original asset the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient) the entity has an obligation to remit any cash flows it collects on behalf of eventual recipients without material delay.
Were the risks and rewards from the financial assets transferred?
If substantially all the risks and rewards have been transferred, the asset is derecognized. If substantially all the risks and rewards have been retained, the entity must continue recognizing the asset in its financial statements.
If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess whether it has retained control of the asset or not.
If the entity does not control the asset then it must derecognize the asset. But if the entity has retained control of the asset, then the entity continues to recognize the asset to the extent of its continuing involvement in the asset.
Transfers of financial assets are then discussed in much greater detail in IAS 39 and also, application guidance in paragraph 36 summarizes derecognition steps in a simple decision tree. You can familiarize yourself with the decision tree in the video below this summary.
Derecognition of a financial liability.
An entity shall derecognize a financial liability when it is extinguished. It is when the obligation specified in the contract is discharged, cancelled or expires.
Hedge accounting.
In this short summary I do not intend to explain what hedging is and how it works. But I can promise to do it with some good example in some future article. Here, I just want to sum up what IAS 39 says about hedging.
IAS 39 allows hedge accounting only if all the following conditions are met:
hedging relationship is at its inception formally designated and documented, together with entity’s risk management objective and strategy for undertaking the hedge the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk (consistently with the documentation) for cash flow hedges: a forecast transaction must be highly probable and must present exposure to variations in cash flows (which can affect profit or loss) the effectiveness of the hedge can be reliably measured the hedge is assessed on an ongoing bases and determined actually to have been highly effective.
IAS 39 then describes the rules for 3 types of hedging: fair value hedges, cash flow hedges and hedges of a net investment in a foreign operation.
A fair value hedge is a hedge of the exposure to changes in fair value of a recognized asset, liability or a previously unrecognized firm commitment that is attributable to particular risk and can affect profit or loss. The gain or loss from the change in fair value of the hedging instrument is recognized immediately in profit or loss. Also, an entity should adjust the carrying amount of the hedged item for corresponding gain or loss from the hedged risk—this adjustment shall be recognized to profit or loss, too.
A cash flow hedge is a hedge of the exposure to variability in cash flows that could affect profit or loss and is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. Here, that portion of the gain or loss on the hedging instrument that is determined to be an effective shall be recognized to other comprehensive income. Ineffective portion shall be recognized to profit or loss. IAS 39 then prescribes rules for accounting when a forecast transaction subsequently results in recognition of a financial or non-financial asset or liability.
A hedge of a net investment in a foreign operation is accounted in the similar way as a cash flow hedge.
IAS 39 also specifies when hedge accounting shall be discontinued prospectively:
when the hedging instrument expires or is sold, terminated, or exercised, or when the hedge no longer meets the criteria for hedge accounting, or when the forecast transaction is no longer expected to occur, or when the entity revokes the hedge designation.
Standard IAS 39 addresses all issues in a greater detail and contains application guidance, because it really is very complex and tough standard. I have summarized it also in the following video:
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122 Comments.
great summary, answered lots of questions.
This is a must read article for clear and concise knowledge. Obrigado.
hi, which category out of the four for financial assests is the most commonly used for insurance companies ? and why?
i would say AFS P&L.
well, it does not really matter whether the company who classifies financial assets is insurance company or not. Insurance companies classify their financial assets exactly in the same way as any other company – so it depends whether the entity aims to hold the asset to maturity or not; whether the asset is a loan / receivable or not and other.
Yes, I too agree with u, because it depends on the intention of the company.
Insurance companies specifically life companies do invests significantly in fixed maturity quoted instruments and we can have either keep them at HTM or AFS depending on management decision and intentions.
Kindly explian how to designate a subsidiary low interest loan in the holding compay’s seperate financial statement and if it’s apporopriate to record it as investment so fair value can be avoide.:)
please clarify the question: are you asking about the below-market rate loan that was provided by parent company to subsidiary? And also, what standard are you following – IAS 39 or IFRS 9?
Anyway, if we talk about separate financial statements, loans are basically measured at amortized cost (if not designated at fair value), even if they are below-market rate. However, you should always measure financial assets at fair value initially (plus transaction cost in this case) – so at initial measurement, you can never avoid fair values. And no, you cannot record this loan as “investment” and measure it at cost as it is not an equity instrument.
Muito obrigado! However, I’d like very much if you could check my consideration in your example on youtube/watch? v=1MPj2eIGHi0&hd=1.
About the entry at last for the case when asset held at Fair value; I think that the interest income received should be recognized on P/L and therefore does not affect the FV of asset, right? At year end of 20z3, we just have to compare the FV 125.584 and FV2: 127.500…
That’s what I’ve known. Please help me check them!! Obrigado!
either way you do, the effect on P/L is the same, isn’t it?
FV2 at 125 584 is before paying the coupon at the end of 20Z2 (or beginning of 20Z3); FV at 127 500 is AFTER paying the coupon, so we recognized coupon payment as decrease in receivable from bond to be consistent.
The thing is that IFRS give really little guidance on how gains and losses should be disaggregated. I always prefer to treat cash payment of coupon as decrease in bond asset and then compare fair values AFTER coupon – in this case, P/L effect is 8 416 as per example.
According to you, interest income is 6 500 plus change in FV is 1 916 (127 500 less 125 584) – add it up and you’ll still have the same P/L effect of 8 416.
Your video was perfect fro the basics on hedge accounting . But I’m struggling to grasp the finer concepts such as IAS 39 para 93 and 94. Along with the application of the different types of hedges in the financial statements. Do you think you could do a video with an example to help us understand these.
Many thanks Michael.
currently, I am working on the course about financial instruments including hedging, so finer items will be covered there. But of course, I plan to add free videos related to basic understanding of hedging principles.
Best regards, Silvia.
Re IAS 39 I am a student trying to understand the derecogntion tests. Please clariify if the financial asset remains on balance sheet because it does not meet the criteria for a “Transfer” how is the consideration received by the entity for the transaction treated under the standard. There is no specific provision that states that the consideration be treated as an imputed loan i. e para 29 (risk and rewards test) of para 31 (continuing involvement)
The consideration received is basically a liability, of course. The provisions related to financial liabilities arising from failed derecognition of financial assets say that you need to recognize an interest expense on your liability in the subsequent periods (if there is any). Also, there are specific provisions related to continuing involvement accounting, but it’s quite impossible to cover this topic in the comments’ seção. I covered it fully in my course about financial instruments. Silvia.
Your style of teaching is unique. God bless you for this wonderful piece.
Oi. I would like to ask with regards to loans and receivables, should we amortized the service charges deducted from loan proceeds over the term of the loan using EIR method like how the principal and interest are computed?
Hi Michelle, basically you’re right. S.
My company has an embedded derivative which is a foreign currecncy denominated convertible loan. It is carried at fair value leading to huge varaiations in PL.
is their any way that such variations are eliminated?? if yes, how.
Dear Hassan, of course there is a way to eliminate it – for example, taking some fair value hedge. S.
Thanks for such a wonderful teaching! You are just AWESOME 🙂 I am a big fan of yours!
Thank you so much 🙂 In fact, I love your quote and I’ll use it on my web 🙂
Thank u so much for this video and summary. I would like to ask with regards to loans and receivable, can you have me to answer this question ” identify, with reason how trade account receivable will be disclosed.
and measured accordance with IAS 39″ plz. Obrigado.
trade receivables are in most cases classified as “loans and receivables”in line with IAS 39. They are measured at amortized cost. The reason is that they were generated in the normal course of business and serve as a medium of money collection rather than for capital / trading purposes. They are not quoted on the active market and the payments are determinable in advance. Espero que ajude. S.
Thank u so much 😀
My company applies fair value hedge accounting with financial liabilities. Should these liabilities been classified as financial liabilities in the group: fair value through profit/loss or in the group Amortised costs.
Obrigado pela sua resposta.
Hi Glenn! Yes, you can measure these financial liabilities at amortized cost. But in this case, application of hedge accounting is more complicated than if you carry these liabilities at fair value. The reason is that any gain or loss on hedged item shall adjust the carrying amount of that item (=your liabilities), and you literally amortize this difference to profit or loss (based on recalculated effective interest rate at the date of starting the amortization). Quite complicated, but your choice. Espero que ajude! S.
What would happen if an AFS financial asset was impaired down to zero, but in subsequent years a cash recovery was received – how would this be treated?
Could this be treated as a recovery through the impairment line, or as a realised fair value gain?
Hi Mary, please could you clarify a bit? What kind of asset was that? You received the cash and then what happened? Did you derecognize the asset? Or its part?
If you derecognize the asset, then it’s more appropriate to recognize profit from sale / disposal, rather than reverse the impairment loss. If the asset stays in your accounts and reasons for impairment no longer exist, then you can reverse impairment loss to P/L.
My company had invested in securities in one of the company. Company is not listed and we have recognized under AFS . It is unquoted securities.
We had done provision as no activities had been there from long time. Recently I have received its audited financials and last financial year there loss has been reduce as compare to previous year.
So my question can we reversed the provision as investment is active and show sign of improvement.
Hi Raj, I don’t know exactly about your transaction and how you recognized the provision, but I guess you talk about the impairment. Well, IAS 39 explicitly states that you cannot reverse an impairment loss related to equity instruments like shares. S.
Thank you for the summarized piece.
When a receivable has been derecognized due to uncertainty in collection. How should it be treated if it was later collected?
receivable should not have been derecognized due to uncertainty in collection, because in this case, rules for derecognition were NOT met. Instead, a company should have recognized a bad debt adjustment. S.
Our company intends to treat loan and advances as Financial assets as per IAS 39. I need your help to apprise me the procedure and really appreciate if you send me schedule and journal entries of following scenario.
Loan amount US$ 2 Million interest rate 3% p. a. and effective rate of interest 7% and loan period is 5 years. Looking forward your reply. Muito Obrigado.
If Insurance company is required to classify all investment as held to maturity as per law. Whether they can hedge their liabilities under IAS 39. What the provisions.
Mahesh Agarwal, India.
Hi Mahesh, yes, they can 🙂 S.
I would like to obtain some clarification in respect of offsetting of financial assets and financial liabilities. Could you please tell me if loan granted by a bank could be offset against the savings account held with the same bank and presented as a net liability in the statement of financial position. Is this allowed under IFRS 9/7?
No, you cannot offset these 2. S.
Obrigado. You are very helpful.
How do you account for clean up call options?
An originating company (company A) has receivables which it securitises by transferring them to a securitisation entity (company B). Assume that derecognition criteria from the point of vie of company A has been met and as a result all these receivables are on company B’s balance sheet. company A services these receivables on behalf of company B at a fee based on an arms length basis.
A call option (the clean up call) is in place for company A to buy back the receivables once they reach the mark of 10% of the initial transfer value. Note this is a one way option. This contact is in place because of the fact that in future the cost of servicing B’s receivable will be higher than the benefit, therefore as a cost efficient measure.
Is this an embedded derivative?
How does company A count for the call option?
Does accounting vary depending on how far away we are from the 10% mark?
Many thanks in advance for your response.
Hi Tammy, yes, call option is an embedded derivative in your sales contract, however, from what you wrote, I have doubts that derecognition criteria related to receivables were met.
It’s difficult to reply to your questions in the comment, as it’s quite complex issue. You need to assess whether you really need to separate embedded derivative from the host contract – please revise separation criteria in IAS 39/IFRS 9 (based on what you apply).
Then if separation criteria are met, you need to set the fair value of this option and account for the option at fair value through profit or loss (as for any other derivative). Again, it’s quite difficult as you need to apply option pricing models or alternative ways. And yes, intrinsic value of the option will depend on how close you’re to surpassing 10% mark.
Hope it helps a bit.
I am very grateful for your response. I do understand the complexity of the scenario but your response has give me pointers and confirmed some of my thought.
With regards to accounting for the call option (second question), if it was concluded that the separation criteria were not met, does that mean it is assumed that the value of the receivables does includes the value of the derivative?
Many thanks again and your response is very much appreciated.
hm, I would rather say that the transfer price for these receivables should reflect the value of a derivative – otherwise, the receivables were not transferred at fair value.
Hi Silvia, If for example a company signs legal agreements(including share purchase agreement, shareholders agreement) in order to acquire shares/convertible debt in the target firm on say 30th September but the funds to acquire those shares are paid on 1st October when can the company record the investment in its statement of financial position? Would it be 30th or 1st? On the 30th the company would not yet have released the funds so I was wondering when the asset recognition should take place, and if a financial liability has been created by signing the legal agreements on 30th September?
this is a financial instrument and it should be recognized as soon as the entity becomes a party of contractual provisions of that instrument. Therefore – 30th September. S.
Obrigado por esclarecer.
Thanks for the wonderfull explanation.
Can a Equity investment in non functional currency be hedged.
If yes, than how is the fair value gain/loss shall be accounted.
Hi Mayur, yes, why not? In such a case, I would say it’s a fair value hedge. S.
Obrigado pela sua resposta.
Equity investment, being a non monetary asset will be carried at historical cost of conversion from non functional currency according to IAS 21.
But there is exception in IAS 39 with regard to carrying Equity investments at Fair value (spot rate).
Just want to know that under what circumstances this option can be availed.
A financial asset is an asset that is a contract that will or may be settled in the entity’s own equity instruments and is:
a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments.
What is meant by entity’s own equity instrument ?
for example, it is an entity’s own share (not the share of some other entity), or entity’s own warrants or any other instruments that are booked to equity. S.
Obrigado por sua resposta.
will u please help me to understand this sentence . ”A financial asset is an asset that is a contract that will or may be settled in the entity’s own equity instruments and is:
a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments”
Hi Sylvia. Please what is the right treatment for amount deposited for shares by a sole shareholder in a financial institution. Is it allowed to treat it under equity & reserves or under liability.
did you mean the situation when the sole shareholder pays up for the share capital of the new company? S.
What of a scenario where a shareholders makes payment for shares but the shares have not been issued to him or he decides to defer the allotment of his shares to a latter date but doesn’t ask for a refund of his money? How do you treat this - equity or liabilities?
It all depends on the specific agreement/arrangement. However, I would say it’s a liability until the shareholder clearly makes a decision about allotment of shares. S.
Hi Silvia, if a company issued a convertible bond to its investor with a redemption option, in other word, the company can redeem the convertible bond at anytime before the maturity date, is the redemption option an embedded derivative? should it be treated as a derivative financial asset separately?
Hi Iris-Ann, what you described, is a typical compound financial instrument with both equity and liability component. I have written an article about it some time ago, so you might check it here: ifrsbox/how-to-account-compound-financial-instruments-ias-32/
Accounting for changes in classification from FVPL-HFT to AFS my question is;
if i prepare the accounting entries for the reclassification should i includes the realized trading gains/losses and interest earned Or it will retain to FVPL-HFT category.
Hi Silvia, If a parent company collects a loan at market rate in its own name but transferred it to its subsidiary at no cost. How will the loan be treated in the books of the parent company and subsidiary.
Thanks for the swift response.
Well, if it’s a market rate at which the loan is transferred, then I don’t see any problem with the fair values. Just be careful with the cost of acquiring loan – if subsidiary effectively takes this cost, then you simply recognize subsidiary’s liability and parent’s receivable to subsidiary + parent’s liability to bank (however, take this as a guidance only – I would need to see the contract to make reliable conclusion).
Obrigado pela resposta. The loan papers carry the name of the parent company as obligor. This was obatined in its name because the subsidiary is a new company and is yet to have that capacity to secure facility from the bank.
My concerns which I need your input are as follows;
1. Who will recognize the loan in its book. Is it the parent or sub?
2. If its the parent, can it transfer the cost of the loan and the full loan value to the sub?
3. What will be the accounting entries for 2 above.
4. Who recognizes normal and effective interests?
Entendo. Basically, parent can’t get rid of the loan, because it will still be liable to the bank – this does not qualify for derecognition and parent keeps recognizing the loan.
As a result, there are 2 separate relationships: 1) loan between the bank and parent, 2) loan between the parent and a subsidiary. Each of them should be treated separately, based on the nature of agreements.
For the remaining answers, I can’t give you responsible answer and I haven’t seen the papers and I will never guess. But the above should give you hints. 🙂
Muito obrigado. You are a darling!
Can derivatives be classified as AFS or are they always at FVTPL?
what is the meaning of Incurred loss model under IAS 39 ? ,
You account only for the losses that have already incurred and not the losses that you expect to incur based on the past experience/statistics (as in IFRS 9). S.
Hi, I have a question about transaction cost under IFRS 3 (business combination) and IFRS 39.
You stated that under IFRS 39, When financial asset or financial liability are not measured at fair value through profit or loss, then directly attributable transaction costs shall be included in the initial measurement.
When you said “included in the initial measurement”, did you mean to add the transaction cost to the carrying value or deduct against the carrying value?
Also, under IFRS 3, is the cost to issue equity securities added to the capital stock or deducted against the capital stock?
Obrigado pela ajuda.
under IAS 39, if your financial instrument is not at FVTPL, then the initial measurement is its fair value + transaction cost.
Transaction cost to issue own equity stock – it’s deducted from equity as soon as it’s incremental to the issue (it would not have been incurred without the issue of stock) – please refer to IAS 32 para 37.
Obrigado. Just to confirm on the transaction cost under IAS 39, if it’s a financial asset that isn’t measured at FVTPL, transaction cost is added to the financial asset, while if it’s a financial liability that isn’t measured at FVTPL, transaction cost is deducted from the financial liability, right?
Can the same security be held by an institution in both AFS book and Trading book?
Are there any restrictions or concerns under IFRS?
IFRS 9 states that there are different ways of measuring a financial asset, which are:
1. Amortised Cost.
2. FV through P&L.
3. FV through OCI.
Can you please highlight what is meant by recognizing an asset at amortised cost, at FV through PL and OCI? How do we recognize an asset at FV through P&L? and at OCI?
Hi, Silvia, Thanks for simple explanation of difficult issues. The illustrations are brilliant. It helps a lot.
Eu tenho uma pergunta. A subsidiary buys a financial instrument (doesn’t matter bond or equity) from its parent. Under IFRS 9 the instrument will be classified as FVOCI. But there is a difference at initial recognition between the FV and the transaction cost. Can we account this difference to OCI, or it must be PV? My friend says it’s OCI since it’s an instrument from shareholder, but I can’t find the legal answer in IFRS/IAS.
Can you advise on how to book a bond purchased at a discount please.
How would you account for semi-annual premium on redemption on debentures receivable by the investors.
If the equity holder provides long term loan for company operation than Is it necessary to be discounted and charge the amount as revision in retained earning?
It seems that the loan would be a financial liability and the interest is charged in profit or loss (if held at amortized cost). It does not matter whether it’s from an equity holder or not. S.
Hi Sylvia Good Day.
Our company is a bank( giving credit to client)
We entered to a financial guarantee contract for 10 yrs, wherein company X will be the guarantor.
The contract price for 10 yrs is $35.000.000.
In the first year we need to pay $175.000 and for the succeeding years we need to pay 1/2 of 1% of all the outstanding loan of the client.
My question is, what is the treatment of $175.000 that i pay for the first year, and the payment for the succeeding years? and what IFRS im goinhg to apply.
Muito obrigado!!
What method of accounting im going to use. IFRS 9 or 4 talks about on the side of the guarantor, how about on the part of the company who is guaranteed? Is it a financial asset or liabilities? I think its an asset for us,
Colleagues , comments are welcome.
Oi. Can financial assets at FVTPL be subject to impairment. Obrigado.
Can you explain to me if netting off management fee arising from an investment against the investment income from same investment is allowed in presenting IFRS compliant financial statement?
Dead D1, in fact, IFRS permits netting off only at some circumstances. In your case – it depends on your activities, but if investment income is not material and is not a primary activity, then you can net off. S.
What is the treatment of an interest-free loan payment date of which is uncertain?
Company A provided its subsidiary with an interest-free loan which will be payable at some point in time in future. Company A has not demanded the loan from last 3 years and it is expected that it will not demand it in foreseeable future.
How should Company A and Company B account for such a transaction?
this is difficult as the cash flows are not set in this case. Can you at least assume that this loan is repayable on demand? In this case, you would not need to discount it. If it cannot be repayable on demand, you should discount it over the minimal period over which a lender can demand its repayment. S.
Making this assumption is the only choice then I suppose.
It is in substance an investment and not a loan as it is interest free and the investor will not demand repayment. Provided that such intention is communicated to the subsidiary, the loan in effect is an investment (substance over form). When this treatment is applied it should be disclosed in the accounting policies.
Outra pergunta. Do we have to amortise a one-year interest-free loan obtained for building/constructing/acquiring a qualifying asset (according to IAS 23: Borrowing Costs)?
I have raised a liability that has incurred transaction costs. I want to write the costs off to the income statement at the start of the loan rather than capitalise and amortise them over the loan period. Is there scope in the standard to allow me to do this.
you can put your transaction cost into the P/L rather than amortize them together with the liability – it’s when you decide to classify your financial liability at fair value through profit or loss at initial recognition. But, you need to do it at initial recognition. S.
Hello Silvia! Thank you so much for this site, it has really been helpful. 🙂
I’m having great difficulty with a question and I hope you would be able to assist me.
On 1 January 2013, Bank Alpha takes a five-year deposit from a customer with the following rates of interest specified in the agreement: 2% in 2013, 2.1% in 2014, 2.2% in 2015, 2.4% in 2016 and 3% in 2017.
Supposing the customer exercises his option to withdraw the deposit after four years without any penalty, at what rates should interest expense be accrued by Bank Alpha in each of the deposit years?
Any relevant FRS-es would help 🙂
I would like to ask regarding the directly attributable transaction cost. Does this include value added taxes and sales taxes?
This site has been very helpful. Obrigado por isso. 🙂
it depends on whether these taxes are claimable from the tax authorities or not. For example, if you are a VAT payer and you are able to claim VAT paid back in your tax return, then no, it’s not a part of acquisition cost. But, if you are not a VAT payer and you are not able to claim VAT, then yes, VAT is a part of an acquisition cost.
However, are we talking about PPE here? As you posted this question under financial instruments and I’m not sure what VAT is applicable here. S.
Thanks Miss Sylvia. Your response is very helpful. I’m talking about Available for Sale financial assets. Well, your reply has given me a lot of information. Obrigado por isso. 🙂
Company applies CF hedge on its variable liabilities (IAS 39). The hedged risk is changes in the Libor.
The liabilities pay Libor plus margin, subject to an embedded zero floor on the total interest including margin (ie no interest is charged to the lenders in any case). Floor is out of the money at initial recognition , thus not bifurcated.
Company designates receive – variable (Libor)/ pay - fixed as CF hedge. Swap has no floor.
Ineffectiveness arises when Libor plus margin <0 because swap pays on both legs while the liabilities don’t bear interest. Can Company ignore the time value of the embedded floor and only recognise ineffectiveness when the floor is actually in the money?
Thank you soo much.
What are the Effective Interest Rate (EIR) and Amortised Costs (AC) for an Avalaible for Sale (AFS) security in the table below ?
ID_INSTRUMENT ID_TRANSACTION VALUE_DATE SETTLEMENT_DATE QUANTITY FACE_VALUE SETTLEMENT_AMOUNT PRICE CLEAN_FLAG.
sec_afs_1 1 2/15/13 -100 0.9 1.
sec_afs_1 2 3/15/13 60 0.89 1.
sec_afs_1 3 3/31/13 -40 0.93 1.
sec_afs_1 4 3/31/13 50 0.95 1.
Can the classification available for sale also be called as held for trading (while going through frs 39 - I got this query)
How is deposit for shares treated in the financial statements.
Is there any guidance, as to if we can chose not to use the Effective Interest Method for calculation of interest income on Assets Held under Fair Value Through PL (FVTPL)
Mohamed, once you select FVTPL, you do NOT apply the effective interest method. You do fair value changes. S.
Thanks for the wonderful video, I want to understand whether the de recognition mechanism has changed under IFRS 9 or is it the same as IAS 39. Also can you give me an example of how recognising a financial asset has changed from IAS 39 to IFRS 9 for all the 3 classifications.
Muito bem adiantado.
Jain, that would require more elaborate answer than in one comment 🙂 S.
We have invested in foreign operation (in shares ) and we have entered into agreement in this financial year. But we made our investment partially and one part will be invested in next FY.
1.How do we record this in current Financial year ?
2.Can we revalue this end of current FY.
it depends precisely on the contract conditions, but let’s say that you gain a control over your shares when you pay (shares are transferred after payment). Then you account for this as 2 acquisitions. If it’s in a foreign currency, then it’s a non-monetary asset. The subsequent measurement depends on the classification of your assets, but in most cases, yes, you do revalue at fair value. S.
It depends of the nature of the investment and its category.
Regarding the part that will be invested next year, no recognision should be made in current year but a disclosure note will be enough i think.
Hi Silvia. Ótimo post.
Speaking on Amortised Cost Measurement, I would like to know specific examples of transaction fees that are required and not required to be amortised when carrying out the valuation of the financial instruments. I am aware that there are one-off fees and there are periodic fees paid or received (which arose as a result of the creation of the instrument). Is the amortised required on only one-off fees or periodic fees or both? Can you give specific examples of fees required or not required to be taken into consideration when carrying out such measurement?
Hi Silvia. Ótimo post.
Speaking on Amortised Cost Measurement, I would like to know specific examples of transaction fees that are required and not required to be amortised when carrying out the valuation of the financial instruments. I am aware that there are one-off fees and there are periodic fees paid or received (which arose as a result of the creation of the instrument). Is the amortised required on only one-off fees or periodic fees or both? Can you give specific examples of fees required or not required to be taken into consideration when carrying out such measurement?
For assets and liabilities at FVTPL, each period they are revalued to unrealized gains/losses. Then in the period sold , there will be a realized gain for the difference between the most recent fair value and proceeds. So assume that the last several periods recorded an unrealized gain each period on this particular asset when it’s sold, do those unrealized gains somehow get reclassified to realized gains ? Like debit unrealized gain(to clear previous P&L entries) and then credit realized gain? That seems more like OCI accounting. But I guess I just thought that the “realized gain” on P&L should somehow be proceeds less original cost ?
I need to say that these “unrealized” differences in the past periods were recognized in profit or loss – it means, that they were in fact realized. As a result, when you sell an asset, any gain or loss is recognized in P/L, an asset is derecognized and that’s it. S.
My Company borrowed funds from a financial institution and the contract stipulates that some fees would be paid upon maturity of the facility. I have not treated it as a transaction cost as I could not find any reference in the standard to fees paid in arrears. The Auditor is insisting that the payable fees is a transaction cost and has factored it into the amortised cost computation.
What is your view on this treatment?
If an investment is measured at FVTPL I see transaction costs on measurement are not capitalised.
How about transaction costs upon sale? Would these reduce the realised gain? Or would they be expenses separately in P/L?
Hi Seb, yes, they reduce the gain on sale. S.
I wanted to find a Company gave its employees house loans some years back at a Lower interest rate that was prevailing over time. However the rates have changed in the market as they have drastically increased. What should they do. Should the Loans be revalued to show fair value to current rates being used by the Banks.
can an investment in subsidiary be classified in investments but valued at FVTPL? only asset of sub company is investment in a fund.
In individual investor’s financial statements – sim. However, unless the investor is an investment entity and meets the exception criteria as per IFRS 10, then you need to consolidate.
how to account for a loan discharge? Loan had a collateral, and with the discharge, collateral has been removed (buildings), so there is no obligation toward the bank and the property is not pledged anymore.
a company bought receivables, that were secured by a collateral. The fair value of the collateral is much higher than the price the company paid for receivables. How to account for the transaction? And what if the receivables were not paid when due, and the company has to sell collateral for the price much higher than the receivables were paid for?
Can you sharing with me about ifrs 9 “financial Asset Loans and receivables”?, what your advice about “deposit rent”?
Thaks Very Much Before…
if impairment loss arises consecutively in two years after that there is gain. then which loss would be reversed. either loss for current year in which gain arise or both years loss commulatively.
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