ifrs9_financial_instruments.pdf

7/28/2019 Ifrs9_financial_instruments.pdf

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March 2012 IFRS 9 Page 1

- nanc a nstrumentsReplacement of IAS 39

Mr. Manil Jayasingha

Partner

Ernst & Young


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DifferencesfromIAS39

Scope&objective Nochange

Initialmeasurement&Derecognition Nochange

ClassificationandMeasurement Assets Substantial

Change

ClassificationandMeasurementLiabilities Somechanges

29 August 201231/10/2008 Update to the FIWG Network Page 3

Presentationand

disclosures Some

changes

Classificationandmeasurementof

financialassets IFRS9 IAS39

Financial Assets

Fair valueAmortized cost

Availab le-for-sale(AFS))

Fair valuethrough profit

or loss(FVPL)

Held-to-maturity(HTM)

Loans andreceivable

s (L&R)



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Classificationandmeasurement

Financialassets OverviewIs the financial asset a DEBT instrument or an EQUITY investment?

DERIVATIVEDEBT EQUITY

Meets the Business model

test?

Fair value through OCI

option used?NO

Meets the Characteristics of

the financial asset test?

YES

NO

NO

Held for trading?

YESNO

Amort ised

costFair value

through OCI

Fair value through

profit or loss

YES

NO

YESFair Value Option (FVO) used?

IFRS 9: Financial instruments Page 5


Financialassets

Amortized

cost

Amortised cost

e t nstrument s measure at amort ze cost on y ;

If business model is to hold instruments to collect contractual cash

flows (the business model test);AND

The contractual terms of the financial asset give rise, on specified

dates, to cash flows that are solely payments of principal and interest


(characteristics of the financial asset test)


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Amortised costcriteria

BusinessmodeltestandCharacteristicsofthe

Applicationguidanceexamplestohelpexplaintheconcept

Bothprinciplesareequallyimportant but,asrecommendedbymanyrespondents,thestandarddiscussesthebusinessmodelfirst

IFRS 9: Financial instruments Page 7Page 7

Businessmodel

test

Tobeassessedonthebasisoftheobjectiveofanentity'sbusinessmodelasdeterminedby

' .

Doesnotdependonmanagement'sintentionsforanindividualinstrument

Appliedtoahigherlevelofaggregation.However,asingleentitymayhavemorethanonebusinessmodelformanagingitsfinancial

instruments.Therefore,

classification

need

notbedeterminedatthereportingentityleveleither.



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Page 9

Thebusiness

model

test

Theobjectiveoftheentitysbusinessmodelmustbetoholdinstrumentstocollectcontractualcashflows(ie principalandinterest)

Somesalesmaybepermitted,forexample:

Iftheassetnolongermeetsinvestmentpolicy(e.g.,declineincreditrating)

Theentityisaninsureranditadjustsitsinvestmentportfoliotomatchthedurationofitsliabilities

Iftheassetissoldtofundunexpectedcashoutflowsorlosses

Amortisedcostmaynotbeappropriateifmorethaninfrequentsalesoccur

Onderecognitionofamortisedcostassets,gainsorlossesaretobedisclosedonthefaceoftheincomestatement

Additionalqualitativedisclosuresofthereasonsforthesale

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Thebusinessmodeltest(cont.)Areasrequiringjudgement

EntityAwantstomaximisetheuseofamortisedcost,andisconsideringwhethertostratifyinvestmentsintosmallerportfolios

Entit Adefinestimebucketsforcurrentaccounts savin saccountsandtermdeposits,basedonexpectedrepayment

Thereare2buckets (i)3yearforCU100(ii)6yearforCU50

Assetsinvestedhavesimilarmaturityprofilesandvalues

Ifthesavingsaccountsbehaviourchanges,cantheassetmixbeadjusted(andnotfailthebusinessmodeltest)?

Analysis:

TheStandardisnotprescriptive thelevelatwhichthetestisappliedisdependsonfactsandcircumstances

AnalogisetoinsuranceexampleinB4.3(b)

Maynot

be

acceptable

ifindicators

suggest

fair

value

management

Page 11

Thebusiness

model

test

(cont.)Areasrequiringjudgement

Financialassetsaresoldduetoaninfrequentevent,would

thebusinessmodelstillqualifyforamortisedcost?

Note:Theincidencemaybeinfrequent,buttheproportionofassets

soldmaybelargeie,morethansome foreg.,tofundcapital

expenditureoranacquisition

Analysis:

Considerpurposeoforiginallyacquiringtheassets

Ifreasonsforsalewerepreviouslynotanticipated,businessmodel

ma still ualif for amortised cost

Ifthesalewas previouslyanticipated,considerifmaturitiesoftheassetareconsistentwithexpectedtimingofsale

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Thebusinessmodeltest(cont.)Liquiditybufferexample

BankMholdsaliquiditybufferofhighgradevanillasecurities

Thebanksstrategyistoalwayshaveabuffer sotheoverallportfoliosize

Thetradersaremeasuredbasedonachievingabufferthatmeetsthe

predefinedcurrencyandmaturitycriteria

theyarenotcompensatedormeasuredonfairvaluebasis

Howevertheychurntheportfolio(i)Astheregulatorsrequireregularsales

toprovetheassetsareliquid,(ii)theywanttomaintainapresenceinthe

marketsoiftheyactuallyneedtosellinacrisisitwillnotlookunusual

The churn rate is about 20% er month. Portfolio is rou hl 6m duration

althoughitisanticipatedthatthegrossgainsandlosseswillbesubstantial

Doesthebusinessmodelqualifyforamortisedcost?

Page 13

Thebusiness

model

test


Bank2purchasescertaindebtsecurities atinitialrecognition,theseassetsare

classifiedasheldfortrading

Theassetsdeteriorateovertimeandseveralareimpaired.Thebankreclassifies

t eseassetsasAvai a e orsa e usingt eOct2008amen mentstoIAS39

becausethereisnoactivemarket

Atthedateofinitialapplication(whenthebusinessmodeltesthastobe

applied),thereisnomarketfortheassetsandpracticallytheycannotbesold

Atthedateofinitialapplication,thebanksintentistoselltheassetsasand

whenitcanfindaprivatebuyerorifthegeneralmarketpicksupalthoughthis

couldtakeuptoseveralyears

Thebankbelievesthattheyholdassetstocollectcontractualcashflowsforthe

foreseeablefuture andthatsucha portfoliowillqualifyforamortisedcost.Doyouagree?Whyorwhynot?

Analysis:Wedonotbelievethatholdingfortheforeseeablefutureissufficient

toachieveamortisedcostclassification

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Thebusinessmodeltest(cont.)Areasrequiringjudgement

BankB

originates

loans,

holds

one

part

of

the

portfolio

to

maturity,andsellsorsubparticipatesanotherparttobanksCandD.

Arethelendingandsubparticipatingactivitiesseparateie.,doesBankBhaveonebusinessmodelortwo?

Analysis:Couldconsiderastwo assetsfromlendingmaytypicallyqualifyforamortisedcost

assetsfromsubparticipation,mayneedmeasuringatFVTPL

Whathappensifasubparticipationfails?

NOTatriggerforreclassification

Ifbusinessmodelcorrectlydeterminedatoutset,willneedtocontinue

measuring

at

FVTPL

Page 15

Thebusiness

model

test


Abusinessmodelinitiallymeetsamortisedcost,but

subsequentsalesaremorethaninfrequent

Shouldtheportfoliocontinuetobeatamortisedcost?

Howareanynewlyacquiredassetsaccountedfor?

Analysis:

NOTatriggerforreclassification

Existingportfolioofassetscancontinueatamortisedcost

Butnew

assets

will

need

measuring

at

FVTPL

(ie,

they

are

consideredtohaveanewbusinessmodel)

Page 16


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Thebusinessmodeltest(cont.)Furtherexamplesfordiscussion

1. Anentityhas2mainsegmentsAandB;certainfinancialassets

aretransferred/soldfromAtoB(internalsaleforthepurposeof

conso a e nanc a s . ou erec ass e asse s e

measuredbasedonBsbusinessmodel?

2. BankPisapproachedbyatelecomsclientforasignificantloan.

Thebankalreadyhasasignificantexposuretothatindustry,but

reallywantstoprovidetheloantomaintainclientrelationship.

Afterafewmonths,BankPreachesitsmaximumlimitstothe

telecomindustryanddecidestosellapartoftheloantoreduce

itsexposureandtobeabletoserveanimportantnewclientin

thesameindustry. Istheloaneligibleforamortisedcostatinitial

recognition?

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Thebusiness

model

test

(cont.)Furtherexamples

3. EntityXholdsaportfoliooffixedratedebtinstruments.The

entitydecidestosyntheticallyselltheportfoliothrougha

er va ve ra er anse ng easse se . ows ou e

portfoliobemeasured?

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Example

FactoringAnentityhasapastpracticeoffactoringits

receivables.Ifthesignificantrisksandrewardshave

ApplyingBusinessmodelinpractice

trans erred romt eentity,resu tingint eoriginareceivablebeingderecognised fromthebalancesheet,theentityisnotholdingthesereceivablestocollectitscashflowsbuttosellthem.

However,ifthesignificantrisksandrewardsofthesereceivablesarenottransferredfromtheentity,andthereceivablesdonottherefore ualif forderecognition,theclient'sbusinessobjectivemaystillbetoholdtheassetsinordertocollectthecontractualcash

flows.


Thebusinessmodeltest(cont.)

SummaryFactorsthatindicatethataportfolioisbeingheldtocollectcontractualcashflows:

Amandatetooptimiselongtermyield/switchingassetstolockinlongtermy e

Yieldoftheportfolioasbasisforremunerationoftheinvestmentmanager

Managementreportingbasedonyieldratherthanfairvalue

Management'sdocumentedstrategyanddefinedKPIspointtolongtermyieldratherthanfairvalue

Aportfoliothatdoesnotchangesignificantlyinsizeovertimeand

Expectedsaleswillnotresultinsignificantgains/losses

Considerallfactorstogether notonastandalonebasis cumulativeassessmentofallfactsandcircumstances

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Thebusinessmodeltest(cont.)

SummaryFactorsthatindicatethataportfolioisNOT beingheldtocollectcontractualcashflows:

Histor oflar e ainsrealisedfromthe ortfoliointhe ast

Amandatefortheinvestmentmanagertomaximisefairvaluegains

Managementreportingbasedonfairvalue

Remunerationofinvestmentmanagerbasedonfairvalueresults

Useofmarketrisk/investmentmanagementtechniques(eg.,VaR)

Portfolioswheredurationmanagementtechniquesarebeingactivelyused(suchasMacauley durationmeasure)

Portfoliosthathavebeenstrate icall earmarkedfordis osal butnotyetwithinscopeofIFRS5

Considerallfactorstogether notonastandalonebasis cumulativeassessmentofallfactsandcircumstances

Page 21

CHARACTERISTICSOFTHE

FINANCIALASSETTEST

Page 22


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Characteristicsofthefinancialassettest

Contractualterms

of

the

financial

asset

give

rise,

on

specified

dates,tocashflowsthatsolelyrepresentprincipalandinterestpayments

creditriskassociatedwiththeprincipalamountoutstandingduringaparticularperiodoftime

Featuresthatwillstillqualifyforamortisedcost: Prepaymentoptions,extensionoptions

Fixed/variableinterestrates

Caps,floors,collars

Unleveragedinflationindexlinked

Leverage(options,forwardsandswaps)

Inversefloaters

Convertiblebonds,

constant

maturity

rate

bonds

Catastrophebonds



(continued)

Contractualcashflowcharacteristicthatintroducesleverage donothavethecharacteristicsofintereste.g.option,forwardandswapcontracts

Aninstrumentthatissubordinated tootherinstruments(e.g.togeneralcreditors)maystillhavecontractualcashflowsthatareprincipalandinterest

Whetheror

not

the

instrument

is

quoted

in

activemarketisnotrelevantforthemeasurementbasisunderIFRS9



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CharacteristicsofthefinancialassettestPrepayment,extensionoptionsandsimilarprovisions

Mayberecordedatamortisedcostonlyifseveral

conditionsaremet:

Theprovisionisnotcontingentonfutureevents,

otherthantermsthatprotect:

i. Theholderagainstcreditdeteriorationoftheissuer(e.g.,

defaults,creditdowngrades,loancovenantviolations),or

achangeincontroloftheissuer;or

ii. Theholderorissueragainstchangesinrelevanttaxation

orlaw;

(additionalcriteriaonnextslide)


Characteristics

of

the

financial

asset

testPrepayment,extensionoptionsandsimilarprovisions

Additionalcriteria

Prepaymentoptions

theprepaymentamountsubstantiallyrepresents

unpaidprincipalandinterest(mayincludeearly

terminationcompensation)

Extensionoptions

andinterestduringtheextensionperiod



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CharacteristicsofthefinancialassettestOthercontractualprovisions

Allothercontractualprovisionsthatcouldchange

thetimingoramountofpaymentsdonotresultin

contractualcashflowsthataresolelyprincipaland

interestunless avariableraterepresents

considerationforthetimevalueofmoneyandthe

creditriskassociatedwiththeprincipalamount

outstanding



ExamplesInstrumentsthatwillqualify InstrumentsthatwillNOT qualify

Abondwithastatedmaturity date.

Principalandinterestarelinkedtoan

inflation index that is not levera ed.

Aconvertiblebondthatisconvertible

intoequityinstrumentsoftheissuer.

Avariable interestrateloanwitha

statedmaturitydatethatpermitsthe

borrowertochangetheperiodofthe

marketinterestrateateachinterest

resetdateonanongoingbasis.

Aloan thatpaysaninversefloatingrate,

i.e.theinterestratehasaninverse

relationshiptothemarketinterestrates.

Abondwithastatedmaturity date

andpaysavariablemarketinterest

Aconstantmaturitybondwithafive

yearterm thatpaysavariableratethatis


ratewhich

is

capped. reset

periodically

but

always

reflects

a

fiveyearmaturity.Afullrecourseloansecuredby

collateral.


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Characteristicsofthefinancialasset

testFeatures

which

could

be

problematic

Amortgageisindexedto12monthEuribor and ,

monthlyorquarterly,however,therateresetsafter6months

AmortgageisindexedtoanaverageLiborrateoveraperiodoftime.Theinterestrateisequaltotheaverage2yearLiborrateoverthelast2years p usa xe sprea . eeconom crationaleistoallowborrowerstobenefitfrom

afloating

rate

but

with

an

averaging

mechanismtoprotectthemfromshorttermvolatility.

Page 29


testFeatureswhichcouldbeproblematic

15yearfloatingrateGovernmentbonds,couponsareresetever 6monthsb referencin tothe10 earrate.SimilartoChinesebondswheretherateissetissettoatwoyearrate.

Loanagreementwithcovenant:spreadabovebenchmarkrateincreasesifborrowersEBITDAordebttoequityratiodeterioratesbyaspecifiedamountbyaspecifieddate.

ua

currency

on s

PrincipaldenominatedinJPYbutinterestinUSD

CouponisfixedinUSDatinception

Atmaturity,bondisredeemedinJPY

Page 30


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testFeatures

which

could

be

problematic

(continued)

InflationindexedEurobonds(e.g.Euro

enom na e on s u n exe o e a an

inflationrate)

Investmentsinunitsissuedbymoneymarket

ordebtfunds

Loanswithstepuprates

Productswithatimelaginsettinginterestrates (e.g.interestispaidmonthlyandisreferencedtotheone

monthratebutusinglastmonthsrateandnotthismonthsrate)

Page 31


Financialassets

Fair

value

Fair value

FVTPL (fair value through profit or loss) all other instruments, exceptwhere FVTOCI option is used

FVTOCI (fair value through OCI) non trading equity investments (bychoice), but dividends through profit or loss

No cost exception for unquoted equity investments



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FairValueOption(FVO)forfinancial

assets*Fair value option available, if

Accounting

mismatch

Managed on

fair value basis

Embedded

derivative(s)


collect contractual

cash flows FV

with financial host

classified in entirety

*FVOunchanged forfinancialliabilitiesatthisstage

Mappingof

old

and

new

categories

Held to maturity Loans and receivables

Fair value

(through

profit or loss)

Amortized

costs

Fair value

(through

OCI)


At fair value through

profit or loss Available for sale

Debt

instrument

Equity

instrument


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Embeddedderivatives

Bifurcationof

embedded

derivatives

is

eliminated

for

hostfinancialassetswithinthescopeofIAS39

Onlyoneclassificationapproach Dotheembeddedderivativestogetherwiththehostinstrumentmeetthecontractualcashflowcharacteristics test?

Yes thehybridcontract(asawhole)qualifiesforamortisedcostclassification

No thehybridcontract(asawhole)ismeasured

Embeddedderivativeswithnonfinancialhostsarenot

addressedat

this

stage

existing

requirements

maintained


Nonrecourse

loans

Somefinancialassetsmayhavecashflowsdescribedas

principalandinterestbutmaynot,infact,represent

. ,

Anonrecourseinstrumentmaystillqualifyfor

amortisedcost,butholdermustlookthroughtothe

underlyingassetsorcashflows

Amortisedcostnotappropriateifcashflowsarelinked

totheperformanceofunderlyingassets/project,etc,

e.g.,interestbasedontrafficontollroad

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Contractuallylinkedassets

Cash flows of tranche are solely principal and interest?NO

Yes

Cash flows of underlying pool are solely principal and interest?

Practicable to look through to underlying pool of instruments?

NO

All other instruments in the underlying pool (i) reduce cash flow

variability or (ii) align with the cash flows of the tranches?

Yes

NO

Yes

Page 37

Yes

Credit risk of tranche < credit risk of the underlying pool?

Yes

NO

Amortised cost Fair value

Contractuallylinkedassets(cont.)

Calculatecomparativerisks,basedonconditionsatoriginal

recognition

ons era ons:

Whatwouldbetheeffectonthelookthroughtestforcontractually

linkedinstrumentsiftheSPEbenefitsfromcreditenhancement

throughthepurchaseofacreditdefaultswap?

Whataboutwherethelinkageisinsubstanceratherthanby

contract?

SyntheticCDOs

CDO squaredorcubed

Blindpools

Page 38


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Page 39

Equities

Page 40


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Equityinstruments Presentation

of

FV

changes

in

OCI

Availableforallequityinstrumentsthatarenotheldfortrading

Freechoiceforeachholdingofaninstrumentatinitialrecognition

Irrevocableforthatholding(noreclassification)

Dividendswillberecognisedinprofitorloss,ifreturnoninvestment(notreturnofinvestment)

Norecyclingoffairvaluechangestoprofitorlossonim airment dis osal or in an other circumstances

Noimpairmenttestingrequired

Additionaldisclosures


Unquotedequity

instruments

Nocostexemptionforunquotedequityinstrumentsallequitiesatfairvalue

Costmaybeusedasaproxyforfairvalueincertainc rcums ances

Indicatorsofwhencostmightnotrepresentfairvalue Asignificantchangeintheperformanceoftheinvestee

Changesinexpectationthattechnicalmilestoneswillbeachieved

Asignificantchangeinthemarketfortheinvesteecompanyoritsproducts

Asignificantchangeintheglobaleconomyortheeconomicenvironment

Asignificantchangeintheobservableperformanceofcomparablecompanies,orinthevaluationsimpliedbytheoverallmarket.

Internalmatters

such

as

fraud,

commercial

disputes,

or

litigation,

or

changesinmanagementorstrategy.

Evidencefromexternaltransactionsintheinvesteesequity,eitherbytheinvestee(suchasafreshissueofequity),orbytransfersofequityinstrumentsbetweenthirdparties.



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PracticalchallengesforFVTOCI

equities Question

(Ref:

B5.12)

Howshouldanentitydeterminewhetheradividendrepresentsarecoveryofpartofthecostoftheinvestment?

ScenarioA

AnentityinvestsinsharesatacostofCU2anddesignatestheseatFVTOCI.ThefairvaluethenincreasestoCU22,resultinginanunrealisedgaininOCIofCU20.TheentitythenpaysaspecialdividendofCU20.

Question:IsitappropriatetorecordthedividendofCU20inprofitorloss?

ScenarioB

WhatifthedividendreceivedwasCU21insteadofCU20? WouldthatmeanthatCU20couldbetakentoprofitorlosswhileCU1would

representarecoveryoftheoriginalcostofinvestment?

Page 43

PracticalchallengesforFVTOCI

equities(continued) Question

WhereshouldtransactioncostsondisposalofFVTOCI

equ es erecor e or e ncome a emen

TensionbetweenPar5.1.1ofIFRS9andB5.4 5.1.1 Atinitialrecognition, anentityshallmeasureafinancialassetatitsfairvalue(see

paragraphs48,48AandAG69AG82ofIAS39)plus,inthecaseofafinancialassetnotat

fairvaluethroughprofitorloss,transactioncoststhataredirectlyattributabletothe

acquisitionofthefinancialasset.

B5.4 Thefollowingexampleillustratestheaccountingfortransactioncostson

the initialandsubsequentmeasurementofafinancialassetmeasuredatfairvaluewithchanges

throughothercomprehensive incomeinaccordance withparagraph5.4.4.Anentityacquires

anasset

for

CU100

plus

apurchase

commission

of

CU2.

Initially,

the

entity

recognises the

assetatCU102.Thereportingperiodendsonedaylater,whenthequotedmarketpriceof

theassetisCU100.Iftheassetweresold,acommissionofCU3wouldbepaid.Onthat date,the

entitymeasures theassetatCU100(withoutregardtothepossiblecommissionon sale)andrecognises a

lossofCU2inothercomprehensive income.

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DisclosuresforFVTOCIequities IFRS

7requirements

WhichinvestmentshavebeendesignatedatFVTOCIandthereasons

forusingthisapproach

Fairvaluesattheendofthereportingperiod

Dividendsrecognisedduringtheperiod,showingseparatelythose

relatedtoinvestmentsderecognisedduringthereportingperiodand

thoserelatedtoinvestmentsheldattheendofthereportingperiod

Anytransfersofthecumulativegainorlosswithinequityduringthe

periodincludingthereasonforsuchtransfers

If an entit dereco nised FVTOCI investments durin the re ortin

period,disclosethereasonsfordisposal,theirfairvalueatthe

derecognitiondateandthecumulativegainorlossondisposal.

Page 45

Reclassifications

(betweenamortisedcostandFVTPL) Reclassificationwillberequired whenanentity

changesitsbusinessmodel Prohibitedinallothercircumstances

AnyreclassificationistobeaccountedforprospectivelyfromtheReclassificationdate

Whichisthefirstdayofthefirstreportingperiodfollowingthechangeinbusinessmodelthatresultsinanentityreclassifyingfinancialassets

Reclassification fromamortised costtofairvaluemeasureinstrumentatfairvalueonthatdate;recognise differencebetween carryingamountandfairvalueinaseparatelinein

pro

or

oss Reclassification fromfairvaluetoamortised cost fairvalue

oftheinstrumentonthedateofreclassification becomesitsnewcarryingamount

Detaileddisclosureswillberequiredininterimreportsandannualfinancialstatements



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Reclassification

ExamplesfromapplicationguidanceReclassification r equired Reclassificationprohibited

Anentityhasaportfolio ofcommercialloans Achangeinintentionrelatedto

. ,

theentityacquiresacompanythatmanages

commercialloansandhasabusinessmodel

thatholdstheloanstocollectthecontractual

cashflows.

circumstances ofsignificantchanges

inmarketconditions)

Afinancial servicesfirmdecidestoshutdown

itsretailmortgagebusiness,andisnolonger

acceptingnewbusiness.Thefirmactively

Atemporary disappearanceofa

particularmarketforfinancialassets


.

Atransferoffinancialassetsbetween

existingbusinessmodels


Mainchallenges Toqualifyforamortisedcost,entitiesneedtodemonstratethat

financialassetsareheldandmanagedwithinanappropriate

Entitiesneedtoassessinstrumentsimpactedduetothenew

measurementcriteriaandmakechangestoaccounting systems

Anumberofareaswillrequirejudgment andinterpretationby

preparersandauditors

InstrumentsreclassifiedusingtheOctober2008amendmenttoIAS

Classificationoftranchesofsecuritiseddebtwillbecomplex,as

theyaresubjecttolookthrough



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Mainchallenges(continued) IfafinancialassetisreclassifiedfromFVTPLtoamortisedcost,itisnot

possibletoamendhedgeaccountingretrospectively

lossesonthoseassetshadbeenpreviouslybeenoffsetbythechangein

valueofderivatives

AdditionaltransitiondisclosureswillberequireduponadoptingIFRS9

Dependingonthechoicesexercised,therecouldbeachangeinthe

geography ofwherecertaingainsandlossesarerecognised

Entitiesneedtodetermineregulatory andtax consequences

,

consequentialimpactonthenetprofitorlossforthereportingperiod

As

financial

liabilities

and

hedge

accounting

have

been

scoped

out

of

thecurrentphase,theremaybesomedifficultiesinunderstandingthe

overallimplications


IFRS9CLASSIFICATIONAND

:

Page 50


26/29


Financialliabilities

Changestothefairvalueoption(FVO)Held-for-trading?

NoChanges due

to own credit, OCI

Yes

FVO used?

(three qualifying

criteria in IAS 39)

except mismatch

Other fair value

changesP&L

Yes

No

Separate embedded

derivative using IAS 39

Includes embedded

derivatives?

Yes

Page

51

Host debt

Amort ised

cost

Fair value through

profit or loss

Embedded

derivative

No

Amendmentstothemeasurementof

FairValueOptionliabilities AmendmentstoIFRS9releasedon28October2010,completesPhase1of

IFRS9,Classification andMeasurement

Forliabilities maintainIAS39 exce twhenFairValueO tionisused:

RecordeffectofchangesinowncreditriskinOCI,withoutrecycling

Otherfairvaluechangesinprofitorloss

Unlessanaccountingmismatchwouldbecreated,inwhichcase,FVchangesinrespectofowncreditwouldberecordedinprofitorlossaswell

Clarificationremeaningofcreditriskandhowtocomputeowncreditrisk

ThethreeeligibilitycriteriainIAS39willremainforFVO

Cannot

revo e

previous

esignations

or

ma e

new

ones,

except

w en

a opting

phase1(assets)ofIFRS9

Mandatoryapplication1January2015 Earlierapplicationpermitted,ifadoptingAssetsphase

TransitionsimilartoAssets

Page

52


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FairValueOptionliabilities(continued) Determinationofaccountingmismatch

Example:

Danishmortgages

Whethertheeffectsofchangesintheliabilityscreditrisk

willbeoffsetinP&LbychangesintheFVofanasset

Basedonfactsandcircumstancesonthedateofinitial

application,nottheinitialrecognitionoftheliability

liabilities)

Page

53


FairValueOptionliabilities(continued) Clarificationsrewhatiscreditriskandhowtocomputeit

Distinctionmadebetweencreditriskandassetspecific

performancerisk

Examplesofassetspecificperformancerisk(SPEs&

liabilitywithaunitlinkingfeature)

IFRS7disclosureforbankswithconsolidatedSPEsmay

needtochange

To measure credit risk can use IFRS 7 methodolo with

clarificationthat

credit

risk

may

include

any

associated

liquiditypremiumOR

Appropriatealternativemethod

Example:SeeextractofUBS2009disclosurePage

54


28/29


Page 55

Flow Chart Steps

Setting the frame

Who is the entity?

What is the transferred asset?

-

RIGHTS

EXPIRED?

PART OR ALL?

CONSOLIDATE SPE?

Derecognize

TRANSFERRED

CASH FLOWS?

Yes

No

Have the contractual rights expired?

Is there a transfer of rights to receivepayments?

Is there a qualifying pass-through of cashflows?

Risks and rewards

Has the entity transferred substantially allrisks and rewards?

PASS-THROUGH?

TRANSFERRED ALL

RISKS/REWARDS?

No

No

Yes

Yes

NoYes

RETAINED ALL

RISKS/REWARDS?

Dont Derecognize

Derecognize

Dont Derecognize

Yes

Has the entity retained substantially all risksand rewards?

Control and continuing involvement

Has entity retained control of assets?

What is the continuing involvement?

RETAINED CONTROL?

DERECOGNIZE

EXCEPT FOR

CONTINUING INVOLVEMENT

No

Yes

Derecognize


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Transition&dateofinitialapplication

Mandatoryforaccountingperiodsbeginningonor

29 August 201231/10/2008 Page 57

THANK YOU

58

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