Steps to Calculate IFRS 9:
The main steps to calculate IFRS 9, the International Financial Reporting Standard for financial instruments, are as follows:
Step 1
Identify the financial instruments that are subject to IFRS 9, such as loans, bonds, and derivatives.
Step 2
Classify the financial instruments into one of three categories: amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVTPL).
Step 3
For amortized cost instruments, calculate the expected credit losses (ECLs) using a forward-looking expected loss model, based on the credit risk of the instrument and the current economic conditions.
Step 4
For FVOCI instruments, calculate the ECLs using a simplified approach that is based on the credit quality of the instrument and the current credit sread.
Step 5
For FVTPL instruments, recognize the ECLs as an impairment charge in the income statement.
Step 6
Calculate the impairment allowance for the financial instruments, by subtracting the amount of the ECLs that have already been recognized from the total amount of ECLs calculated in steps 3-5.
Step 7
Recognize the impairment allowance in the income statement, either as a loss or as a reduction in the carrying value of the financial instruments.
Conclusion
Overall, the calculation of IFRS 9 requires a detailed understanding of the standard, the characteristics of the financial instruments, and the current economic conditions. By following these steps, companies can comply with the requirements of IFRS 9 and provide accurate and transparent information to users of their financial statements.
Muzammal Rahim Khan is the CEO and Co-Founder of FineIT, bringing over 15 years of expertise in software development, implementation, and technical consulting across global markets including the U.S., U.K., Europe, Africa, and Asia. He has led the design and delivery of enterprise-grade solutions that modernize compliance, risk management, and financial reporting for banks and financial institutions. Under his leadership, FineIT has built flagship platforms such as Estimator9 (IFRS 9) and ContractHive (IFRS 16), empowering clients with automation, accuracy, and audit-ready confidence. Muzammal combines deep technical knowledge with strategic vision, driving innovation that bridges regulatory requirements with practical, scalable technology. His focus remains on building resilient, future-ready solutions that strengthen trust and efficiency in financial services.