IFRS 9: Financial Instruments

Contrary to widespread belief, IFRS 9 affects more than just financial institutions

The effects may be more than you expect

Any entity could have significant changes to its financial reporting as a result of this standard. That’s certain to be the case for those with long-term loans, equity investments or any non-vanilla financial assets. It might even be the case for those only holding short-term receivables. It all depends.

Understanding the new standard is vital

International Financial Reporting Standard 9 (IFRS 9) responds to criticisms that International Accounting Standard 39 (IAS 39) is too complex, is inconsistent with the way entities manage their businesses and risks, and defers the recognition of credit losses on loans and receivables until too late in the credit cycle.

The new standard is effective for years beginning on or after January 1, 2018, with earlier adoption permitted. Entities whose predominate activities are insurance-related can delay implementation until 2021.

What does the new standard really mean for you?

The International Accounting Standards Board developed IFRS 9 in three phases, dealing separately with the classification and measurement of financial assets, impairment and hedging.

Classification and measurement

  • Simplified model to record financial assets at fair value through profit or loss (FVPL), fair value through other comprehensive income (FVOCI) or amortized cost based on business model and cash flow characteristics
  • Increased profit or loss (P&L) volatility due to change in residual category from available-for-sale (FVOCI) to FVPL and whole instrument classification without bifurcation of embedded derivatives


  • Earlier recognition of losses
  • Volatility in P&L from impairment gains and losses over time


  • Increase in population of eligible instruments
  • Better alignment with risk management
  • Reduced compliance effort

“IFRS 9’s model for classification and measurement of financial assets is indeed simpler than IAS 39’s, but it comes at the risk of greater profit and loss volatility.”

- Chris Wood, Partner, Accounting Advisory Services, Toronto



What are the major changes?

Classification and measurement

Loans and receivables
  • “Basic” loans and receivables where the objective of the entity’s business model is either collecting contractual cash flows (which are classified as amortized cost) or both collecting contractual cash flows and selling these assets (which are classified as FVOCI)
  • All other loans and receivables can be classified as FVPL

Mandatory redeemable preferred shares and “puttable” instruments (i.e. investments in mutual fund units) which must be classified as FVPL

Freestanding derivative financial assets (e.g. purchased options, forwards and swaps with a positive fair value at the balance sheet date), which must be classified as FVPL

Investments in equity instruments
Entity irrevocably elects at initial recognition to recognize only dividend income on a qualifying investment in profit and loss, with no recycling of changes in fair value accumulated in equity through other comprehensive income. All others should be classified as FVPL.

For more information on classification and measurement, read our publication Financial Instruments: Understanding the basics


  • No longer required for equity instruments at FVOCI
  • Now required to record “expected credit losses” for all debt instruments at FVOCI or amortized cost
  • Unlike incurred losses under IAS 39, expected losses are recorded at inception, without any delay until indicators of impairment are present

For more information on impairment, read our publication Financial Instruments: Understanding the basics


The third major change that IFRS 9 introduces relates to hedging - IFRS 9 allows more exposures to be hedged and establishes new criteria for hedge accounting that are somewhat less complex and more aligned with the way entities manage their risks than under IAS 39. Companies that have rejected using hedge accounting in the past because of its complexity, and those wishing to simplify, refine or extend their existing hedge accounting, may find the new hedging requirements more accommodating than those in IAS 39.

For more information, read our practical guide on hedge accounting

A dynamic transition

Ultimately, the question of how an entity is affected by IFRS 9 is that “it depends.” Some entities may find that classification and measurement of their financial assets will be substantially the same as they are currently under IAS 39 and that their impairment allowances may not be affected materially. Others will change substantially.

How can we help?

We can help you re-evaluate your accounting policies, financial statement note disclosures and other areas affected by the new requirements. We can also help you identify changes to your accounting systems and internal controls.



Contact us

Ryan Leopold

Ryan Leopold

Partner, National Banking and Capital Markets Assurance Leader, PwC Canada

Tel: +1 416 869 2594

Scott Bandura

Scott Bandura

Partner, Assurance, Calgary, PwC Canada

Tel: +1 403 509 6659

Jessica Macht

Jessica Macht

Financial Services Western Canada Leader, PwC Canada

Tel: +1 604 806 7103

David Clément

David Clément

Partner, Assurance, Montreal, PwC Canada

Tel: +1 514 205 5122

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