IASB has Proposed Minor Amendments to IFRS 9 Relating to the Measurement of Financial assets with Prepayment Feature

The International Accounting Standards Board (IASB) recently proposed minor amendments to be made within IFRS 9 relating to the measurement of certain pre-payable financial assets.

As IASB considers the amendment to be urgent and also limited in scope, so therefore the amendment is set to be out for a 30 days consultation period compared with the standard comment period of 120 days. The aim of the amendment is to allow the companies to measure certain pre-payable financial assets with the feature of negative compensation at amortized cost or at fair value through other comprehensive income so that to address loan value and cash flow issues that could be affected adversely by IFRS 9 Financial Instruments.

The amendments proposed by the IASB are a response to the comments which were received by the Interpretations committee of the IFRS regarding the accounting for financial assets with prepayment options. The objective of these proposed amendments is to improve the usefulness of information regarding certain financial assets with prepayment feature.

As per the suggestions submitted by the Interpretations Committee of the IFRS with reference to resolving the issues relating to the accounting for financial assets with prepayment options, the IASB has proposed an exception to IFRS 9 with regards to certain financial assets that would else have contractual cash flows that are comprised only of payments relating to principal amount and interest, but do not meet that condition only due to the result of a prepayment option. According to the amendments proposed by IASB, financial assets with prepayment feature should be measured either at amortized cost or at fair value through other comprehensive income only if certain conditions are met.

The proposed effective date of the amendments proposed by the IASB is January 1, 2018 coinciding with the effective date of IFRS 9. The exception is proposed to be applied retrospectively. Although some relief will be granted if at the time of initial application it is not possible to determine the fair value of the financial assets with prepayment option.

The amendments proposed to IFRS 9 are in line with the IASB’s stance for providing entities with help and support in implementing new standards.