Classification and Measurement of Financial Instruments 3

What’s the issue?

The International Accounting Standards Board (IASB) has continued its analysis of the feedback received to the exposure draft: Amendments to the Classification and Measurement of Financial Instruments Proposed amendments to IFRS 9 and IFRS 7.

What does this mean?

At its February 2024 meeting, following its previous redeliberations in November 2023 and January 2024, the IASB has tentatively decided to the following:

Disclosures requirements (amendments to IFRS 7)

The IASB discussed the proposed amendments to IFRS 7 requiring the disclosure of loans whose contractual cash flows may be modified when contingent events occur (paragraphs 20B and 20C).

The comments received suggested that:

• The scope of the contractual clauses affected by these new disclosures should be limited to financial assets (loans) and should not apply to financial liabilities.
• Among these loans, limiting the scope further to those with ESG-linked features.
• The presentation of a range of adjustments to future cash flows due to the occurrence of a contingent event should only be an illustrative example of the quantitative information that may be provided.

The IASB tentatively decided to:

• Retain both financial liabilities and financial assets within the scope of application.
• Limit the scope of paragraph 20B to contractual clauses that could change the amount of contractual cash flows based on a contingent event that is not directly related to a change in basic lending risks or costs. The scope therefore excludes clauses linked to the time value of money or credit risk, such as interest on arrears or early repayment clauses in the event of a breach of covenants, but includes clauses such as:
  • indexation of the interest rate of a loan to an ESG criterion specific to the borrower; and
  • indexation of the interest rate of a debt to the achievement of a volume of activity by the lender (as observed on the rate of ECB loans known as "TLTRO");
• Changing the requirement to disclose quantitative information, to permit an entity to report information, where relevant, other than the range of possible adjustments to contractual cash flows.

Effective date and transitional requirements

The IASB tentatively decided to:

• Set an effective date for these amendments of annual reporting periods beginning on or after 1 January 2026; this decision was passed by a slender majority (8 of 14 votes);
• Finalise the transition requirements proposed in the exposure draft; and
• Permit early application of the amendments to the requirements related to the SPPI criterion and to the disclosure requirement in IFRS 7 relating to changes in contractual cash flows, separately from the other amendments.

Due process steps

The IASB tentatively decided not to re-expose the text of these amendments and to prepare a final version for publication. 2 of the 14 Board members indicated that they are considering dissenting from issuing the amendments.

When is it effective?

The final amendment is expected to be published in May 2024.

The amendments are due to be effective for accounting periods beginning on or after 1 January 2026.

Further information

For further details about the proposed changes set out in the original exposure draft, refer to our articles:

• Proposed IFRS Amendments – IASB publishes exposure draft relating to the classification and measurement of financial instruments (April 2023).
• Upcoming IFRS Amendments – IASB first deliberations on draft amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures (November 2023).
• Upcoming IFRS Amendments – IASB second deliberations on draft amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures (January 2024).