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The New Ifrs 9

In: Business and Management

Submitted By demolord87
Words 1282
Pages 6
Introduction

The new IFRS 9 is going to replace the IAS-39 which was issued in March, 1999 which is about 11 years ago. Since 1999, the standard had been amended several times during 2003, 2004, 2005 and 2008. The standard became highly popular due to its complexity during the global financial crisis. There were many critisms about the IAS -39 like:

1. Fair Value accounting was said to have created cycles of accounting write downs and distressed selling of assets during the financial Crisis.

2. The application of IAS-39 impairment model for loan loss provisions results in delayed recognition of losses.

3. The over complexity of IAS-39 such as mined valuation models, multiple impairment approaches, complicated transfer rules and hedge accounting requirement.

Due to the above mentioned criticisms the IASB received calls to reduce the complexity of the accounting standards from G-20, European Union and regulators and other stakeholders from around the world. Thus, the new IFRS 9 comes to light to replace IAS 39.

What is IFRS 9?

IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: a) Amortized cost b) Fair value.

Classification under IFRS 9 is driven by the entity’s business model for managing the financial assets and the contractual characteristics of the financial assets.

A financial asset is measured at amortized cost if two criteria are met: a) The objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and b) The contractual cash flows under the instrument solely represent payments of principal and interest.

Two of the existing three fair value option criteria become obsolete under IFRS 9, as a...

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