As the first phase of the IASB’s project to replace IAS 39, the classification and measurement component of IFRS 9 redefines when an entity is required to measure financial instruments at fair value and whether those changes go through the income statement, other comprehensive income (OCI), or both. When it was first published in 2009, IFRS 9 required that all financial assets be measured at fair value through profit or loss, except a) those which give rise solely to interest and principal cash flows and are being held within a business model to hold assets in order to collect contractual cash flows, and b) investments in equity instruments which are designated by the entity as at fair value through OCI on initial recognition. Embedded derivatives in financial assets are no longer accounted for separately, but impact the classification of the entire financial instrument. For financial liabilities, IFRS 9 retains most of the existing requirements in IAS 39, including those for the separation of the embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of the fair value change due to an entity’s own credit risk is recorded in OCI rather than in profit or loss. In November 2012, the IASB proposed amendments to IFRS 9 which would, amongst other things, extend the fair value through OCI option to investments in eligible debt instruments as well. The final amendments are expected to be issued in the second quarter of 2014.
The amendments made to IFRS 9 in November 2013 removed the original mandatory effective date of January 1, 2015. In February 2014, while finalizing the impairment project and limited amendments to classification and measurement requirements for IFRS 9, the IASB tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after 1 January 2018.