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.