1. Why this matters RIGHT NOW
The IASB has issued narrowly scoped but significant amendments to IFRS 9 (Classification & Measurement) and IFRS 7 (Disclosures), effective January 1, 2026, with early adoption permitted. They stem from the post‑implementation review (PIR) of IFRS 9 and aim to clarify sticky areas like ESG-linked features and electronic settlements.
2. Major changes in classification & measurement
a) ESG‑linked financial assets
- Clarifies how to assess the SPPI (solely payments of principal and interest) condition when an asset’s cash flows vary based on an ESG milestone.
- Introduces an additional SPPI test for any contingent feature—meaning ESG-linked clauses won’t automatically trigger FVPL treatment.
- New disclosures: qualitative nature of feature, possible cash flow changes, gross carrying amount.
b) Electronic payments settlement
- Harmonises treatment of trade receivables/payables settled electronically—a point of inconsistent practice.
- Clarifies when to derecognise a receivable/liability upon settlement via systems like real-time gross settlement or digital wallets.
c) Contingent & non‑recourse features
- Adds clarity on classification for assets with non-recourse provisions, contractually linked instruments (CLIs), and other contingent cash flows.
3. IFRS 7 disclosure tweaks
Disclosure obligations now extend to:
- ESG‑linked and contingent‑feature instruments;
- Use of the own‑use exemption (e.g., in power-purchase contracts);
- Hedging relationships involving nature-dependent electricity contracts.
4. How it affects you – and what you need to do now (2025)
| Area | Impact | Action by 2025 |
|---|---|---|
| SPPI testing | May shift classification | Review cash flow models; update SPPI tests for ESG/non-recourse |
| Disclosures | More granularity needed | Track feature terms; prepare qualitative and quantitative disclosures |
| System/process impacts | Changes in derecognition timing | Adjust AR/AP systems; reconcile settlement timing |
| Early adoption? | Optional, but gives control | Consider for tighter compliance or early-transition framing |
These proactive efforts will ensure you’re ahead, not catching misses later.
5. Why IASB pulled these – rationale behind PIR
- The PIR concluded IFRS 9’s impairment model is effective overall, but classification has ambiguous areas—especially around contingent features and modern electronic settlements.
- The amendments aim for clarity, consistency, and better comparability across entities.
6. The bottom line
- No major structural overhaul—but material for almost every entity in financial reporting.
- It’s about the fine print: ESG-linked triggers, electronic settlement mechanics, disclosure standards.
- Taking action now saves headaches in 2026—especially in audit sign-off and regulatory compliance.
🔍 Final Tips for CEOs & CFOs
- Run an ESG-linked asset workshop: Ensure legal, accounting, risk, and IT align on SPPI treatment.
- Conduct an AP/AR settlement deep-dive to catch derecognition timing errors.
- Enhance your IFRS 7 disclosures inventory for contingent/ESG features.
- Decide: early adoption or 2026 implementation? Build the case early.
By aligning systems and processes during 2025, you avoid being blindsided later. This isn’t bureaucratic busywork—it’s about rigour, clarity, and credibility.
Need help mapping the SPPI tests or auditing your settlement flows? I can work with your team to get ahead.
References
- KPMG: Q1/Q2 reports detail the amendments
- IASB: Formal amendments via EU endorsement en.wikipedia.org+5iasplus.com+5viewpoint.pwc.com+5
- IASB PIR summary confirms classification issues
Navigating the 2026 Amendments to IFRS 9 & IFRS 7 — What You Need to Know Now