IAS 39 vs. IFRS 9

Attribute	IAS 39	IFRS 9
Scope	Financial instruments	Financial instruments
Classification	Available for sale, held to maturity, loans and receivables, trading	Amortized cost, fair value through other comprehensive income, fair value through profit or loss
Measurement	Amortized cost, fair value through profit or loss	Amortized cost, fair value through other comprehensive income, fair value through profit or loss
Impairment	Incurred loss model	Expected credit loss model
Hedge accounting	Complex rules	Simplified rules

Introduction

IAS 39 and IFRS 9 are both accounting standards that deal with financial instruments. While IAS 39 was the previous standard, IFRS 9 has replaced it and introduced several changes. In this article, we will compare the attributes of IAS 39 and IFRS 9 to understand the differences between the two standards.

Scope

IAS 39 primarily focused on the classification and measurement of financial instruments, as well as hedge accounting and impairment. On the other hand, IFRS 9 has a broader scope and covers classification and measurement, impairment, and hedge accounting. IFRS 9 also introduces a new classification category for financial assets called fair value through other comprehensive income (FVOCI).

Classification and Measurement

Under IAS 39, financial assets were classified into four categories: held to maturity, loans and receivables, available for sale, and held for trading. Each category had different measurement rules. IFRS 9 simplifies the classification process by grouping financial assets into two categories: amortized cost and fair value through profit or loss. This change eliminates the need for complex rules under IAS 39.

Impairment

IAS 39 used an incurred loss model for recognizing impairment losses on financial assets. This model required companies to wait until a loss event occurred before recognizing impairment. In contrast, IFRS 9 uses an expected credit loss model, which requires companies to recognize expected credit losses on financial assets based on historical data, current conditions, and future forecasts. This change allows for earlier recognition of impairment losses.

Hedge Accounting

IAS 39 had strict rules for hedge accounting, which made it difficult for companies to qualify for hedge accounting treatment. IFRS 9 introduces a more principles-based approach to hedge accounting, which allows companies to better reflect their risk management activities in the financial statements. This change provides companies with more flexibility in applying hedge accounting.

Transition

Transitioning from IAS 39 to IFRS 9 can be a complex process for companies. IFRS 9 requires retrospective application, which means that companies need to restate their financial statements for comparative periods. This can be time-consuming and costly for companies, especially if they have complex financial instruments. However, the benefits of adopting IFRS 9, such as improved financial reporting and better risk management, outweigh the challenges of transition.

Conclusion

In conclusion, IAS 39 and IFRS 9 are two accounting standards that deal with financial instruments. While IAS 39 had a narrower scope and more complex rules, IFRS 9 has a broader scope and introduces several changes to simplify accounting for financial instruments. Companies that transition from IAS 39 to IFRS 9 will need to adjust their processes and systems to comply with the new standard, but the benefits of improved financial reporting and risk management make the transition worthwhile.