The International Accounting Standards Board (IASB) recently issued amendments to IFRS 9, impacting the classification and measurement of financial instruments. These amendments provide much-needed clarity in two key areas:
ESG-Linked Financial Assets
Focus on Basic Lending Risks
The amendments emphasize that contingent events specific to the debtor, such as ESG performance targets, must align with basic lending risks and costs to be considered in classification assessments. This ensures that ESG factors are not treated in isolation but are evaluated within the broader context of the financial instrument’s risk profile.
Settlement of Liabilities via Electronic Payment Systems
Derecognition Exception
The amendments introduce an exception that allows for the derecognition of financial liabilities settled through electronic payment systems before the actual settlement date. This can be applied on a system-by-system basis, provided specific criteria are met. These criteria include:
Irreversible Payment Instruction
The ability to withdraw or cancel the payment instruction must be eliminated.
Insignificant Settlement Risk
The risk of the payment not being completed successfully must be negligible.
Impact on Financial Reporting
These amendments aim to enhance the consistency and transparency of financial reporting by providing clearer guidance on the classification and measurement of financial instruments with ESG features and those settled through electronic payment systems. This is particularly relevant as the use of ESG-linked financial instruments and electronic payments continues to grow.
Stay Informed
For more details, refer to the IASB’s official announcement: https://www.ifrs.org/news-and-events/news/2024/05/iasb-issues-amendments-cmfi-ifrs7-ifrs9/?utm_medium=email&utm_source=website-follows-alert&utm_campaign=immediate
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