How to Calculate IFRS 9: A Step-by-Step Guide

How to calculate IFRS 9: A step-by-step guide

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.

How to Calculate IFRS 9: A Step-by-Step Guide

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