On 30 May 2024, the IASB issued Amendments to the Classification and Measurement of Financial Instruments – Amendments to IFRS 9 and IFRS 7 (the Amendments). The Amendments clarify:
- the requirements related to the date of recognition and derecognition of financial assets and financial liabilities, with an exception for derecognition of financial liabilities settled via an electronic transfer.
- the requirements for assessing contractual cash flow characteristics of financial assets.
- characteristics of non-recourse loans and contractually linked instruments.
The Amendments also introduce certain disclosure requirements for financial instruments. BDO’s IFR Bulletin 2024/07 summarises the requirements of the Amendments, along with explanatory flow charts and illustrations.
Effective Date and Transition
The Amendments are effective for annual reporting periods beginning on or after 1 January 2026, with earlier application permitted. The Amendments permit an entity to early adopt only the amendments related to the classification of financial assets and the related disclosures and apply the remaining amendments later. This would be particularly useful to entities that wish to apply the Amendments early for financial instruments with ESG-linked or similar features. An entity is required to disclose the fact of early adoption.
Transition
The Amendments are required to be applied retrospectively, in accordance with the requirements of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Any difference in the carrying amounts is required to be recognised in opening retained earnings (or other component of equity, as appropriate). Restatement of prior periods is not required and is permitted only if it is possible to do so without the use of hindsight. If the measurement category of a financial asset changes as a result of the application of the Amendments, the entity is required to disclose the measurement category and the carrying amount immediately before and immediately after the application of the Amendments.
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