On 12 November 2009, the International Accounting Standards Board (IASB) issued IFRS 9 Financial Instruments.

Salient differences between IAS 39 and IFRS 9


IAS 39



Financial Instruments:
Recognition and Measurement

Financial Instruments


Currently effective

Effective from 1st Jan 2013 with early adoption permitted


All aspects of Financial
assets & Financial Liabilities including hedge accounting

Only Financial assets included. Presently the standard does not include Financial liabilities, derecognition of financial  instruments, impairment and hedge accounting

of debt instruments

Fair Value Through Profit & Loss (FVPL)

Available-for-sale (AFS)

Held-to-maturity (HTM)

Loan and Receivable (LAR)

Fair Value Through Profit & Loss (FVPL)

Amortised Cost (AC)

of equity instruments

Fair Value Through Profit
& Loss (FVPL)

Available-for-sale (AFS)

Fair Value Through
Profit & Loss (FVPL)

Fair Value Through Other Comprehensive Income (FVOCI)

Basis of classification

Intention to hold till maturity, trading for short term profits, derivative, loan or receivable, or intentional designation subject to certain restrictions

Classification based on business model and the contractual cash flow characteristics

– Debt Instruments

Measured at amortised cost if classified as held-to-maturity or as loan or receivable.

Other classifications are measured at fair value.

Measured at amortised cost (AC) if business model objective is to
collect the contractual cash flows and the contractual cash flows represent solely payment of principal and interest on the principal amount outstanding.

Debt instruments meeting the above criteria can still be measured at fair value through profit or loss (FVPL) if  such designation would eliminate or reduce accounting mismatch.

If not, measured at fair value through profit or loss (FVPL)

– Equity Instruments

Measured at fair value.

Exception: Unquoted equity
investments are measured at cost where fair valuation is not sufficiently reliable.

Measured at fair value through profit or loss.

An entity can irrevocably designate  at initial recognition as fair value through other comprehensive  income, provided the equity  investment is not held for trading.


Embedded derivatives are
separated from the hybrid contract and are measured at FVPL.

No bifurcation of asset.

The financial asset is assessed in its entirety as to the contractual cash flows and if any of its cash flows do not represent either payments of principal or interest then the whole asset is measured at FVPL.

Fair value option

An entity can designate a financial asset to be measured at fair value on initial recognition.

The entity has the freedom to do so and need not satisfy any other criteria

A financial asset can be designated as FVPL on initial recognition only
if that designation eliminates or significantly reduces an accounting
mismatch had the financial asset been measured at amortised

– Debt instruments

Reclassification between the various four categories allowed under specific circumstances with the gain/loss being treated differently depending upon the movement between the classifications.

Reclassification from held-to-maturity (HTM) is viewed seriously if does not fall within the permitted exceptions.

If entity’s business model objective changes, reclassification is permitted between FVPL and AC or vice versa. Such changes should be demonstrable to external parties and are expected to be very infrequent.

– Equity instruments

Reclassification is permitted between the FVPL and AFS.

When transferred from AFS to FVPL, unrealized gain/loss is recognized in P&L based on fair value.

When transferred from FVPL to AFS, no reversal of gain/loss recognized as unrealized is permitted.

However all gain/loss on disposal of AFS are recognized in P&L by transfer from equity.

Reclassification between FVPL and FVOCI not permitted as FVOCI classification is done at the
irrevocable designation of the entity as such.

Only dividend income is recognized in P&L of assets designated as FVOCI.

Even on disposal of such assets, the gain/loss is not transferred from equity, but remains permanently in equity.

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