Accounting for Financial Instruments

IFRS 9 has replaced IAS 39 and has become effective with effect from 1st Jan 2018 in all geographical regions covered by IFRS Standards. Take a 10-day free course on basics of accounting for financial instruments

Discussions on financial instruments

Discussions on acconting and valuation aspects of financial instruments

Recognition & Measurement

The key feature of Ind AS 109 is that the classification is now based on sound objective criteria as opposed to IAS 39 wherein it was based on subjective criteria. While there is a choice given for the entities to classify an investment in equity instrument as either FVOCI or FVTPL, there is no such choice for the classification of debt instrument as it is exclusively based on certain very rigid and objective criteria.

Impairment

Impairment is now more aligned across multiple asset classes. A forward looking model is introduced which imposes trmendous amount of responsibility on the entities. As per Ind AS 109, 12-month credit loss or life-time credit loss should be recognized depending upon certain objective analysis of the concerned asset class.

Hedge Accounting

The objective of hedging is to minimise the risk and/or to protect the profit. The objective of hedge accounting is to protect the profit and loss account from undue and unintended fluctuations in profit. Hedge accounting is not mandatory. However once a hedge is designated, it cannot be discontinued voluntarily so long as the hedging relationship meets the risk management strategy of the enterprise.

Ind AS 102

Accounting standards for Financial Instruments covers IFRS 9 and IAS 32. IFRS 9 deals with the financial instruments from the perspective of the investor, while IAS 39 covers the same from the perspective of the Issuer. IFRS 7 deals with the disclosure requirements.

Financial Instruments Book

This book covers all the relevant standards that deal with financial instruments viz., Ind AS 32, 109, 107, 113 and 21. Since India is first amongst the several geographical locations implementing the accounting standard covering financial instruments, we don’t have any precedence for guidance on several of the new concepts that are introduced by IFRS 9 which are imported verbatim into Ind AS 109.

Publications & resources

There are several books on accounting for financial instruments. There are also other useful resouces for download. Please keep visiting this page for new resources on accounting for financial instruments including disclosure requirements as per Ind AS.

Accounting for Investments Vol 1

Accounting for Investments: Equities, Futures and Options offers a comprehensive overview of these key financial instruments and their treatment in the accounting sector, with special reference to the regulatory requirements. The book uses the US GAAP requirements as the standard model and the IFRS variants of the same are also given.

Accounting for Investments Vol 2

Beginning with an overview of the financial products affected by these changes—defining each product, the way it is structured, its advantages and disadvantages, and the different events in the trade life cycle—the book then examines the information that anyone, person or institution, holding fixed income security and interest rate investments must record.

Ind AS 21

Foreign currency denominated financial statements should be expressed in a single currency so as to enable the users of such financial statements to under-stand and analyse the financial results of the entity. The entity may also have been incorporated / registered as per the country where it operates and may be statutorily required to prepare the financial statements in such currency.

R. Venkata Subramani

Financial Instruments

Hedge Accounting

ECL / CECL

IFRS / US GAAP / Ind AS