According to IFRS 9, what are the three main measurement categories for financial assets?
- Amortized Cost
- Fair Value through Other Comprehensive Income (FVOCI)
- Fair Value through Profit or Loss (FVTPL)
What is the measurement category for equity instruments under IFRS 9 if the entity exercises the available option?
Fair Value through Other Comprehensive Income (FVOCI)
What is the definition of ‘Fair Value’ under IFRS 13?
The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement day.
The definition of Fair Value under IFRS 13 is based on an ‘_____ price’ concept, which is the price received when selling an asset or paid when transferring a liability.
exit
In Fair Value measurement, what defines an ‘orderly transaction’?
It is not a forced transaction, such as a liquidation or emergency sale, and is not between related parties.
What is the ‘main market’ for an asset or liability in the context of IFRS 13 Fair Value measurement?
The market with the greatest volume and level of activity for the asset or liability.
How is the ‘most advantageous market’ determined for Fair Value measurement?
It is the market that maximizes the amount received to sell an asset or minimizes the amount paid to transfer a liability, after taking into account transaction and transport cost.
What are Level 1 inputs in the IFRS 13 Fair Value hierarchy?
Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date.
What are Level 2 inputs in the IFRS 13 Fair Value hierarchy?
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., prices for similar assets).
What are Level 3 inputs in the IFRS 13 Fair Value hierarchy?
They are unobservable inputs for the asset or liability, based on the company’s own assumptions.
Under IFRS 9, a ‘Day 1 P&L’ difference arises when the transaction price of a financial instrument is not equal to its _____ at initial recognition.
fair value
Under what circumstances must a ‘Day 1 gain or loss’ be deferred (held back)?
When the fair value is determined using a valuation technique with unobservable inputs (Level 3) or not exclusively based on observable data.
When is the immediate recognition of a ‘Day 1 gain or loss’ permitted?
When the fair value is evidenced by a Level 1 input or a valuation technique using only data from observable markets (Level 2).
What is the definition of Amortized Cost for a financial asset under IFRS 9?
The amount at initial recognition, minus the principal repayments, plus or minus cumulative amortization of any difference between the initial and maturity amount, and adjusted for any loss allowance.
What is the common practice for recognizing a deferred ‘Day 1 Holdback’ over time?
Institutions usually recognize the holdback on a straight-line basis over the lifetime of the financial instrument.
What method is used to calculate the cumulative amortization of the difference between the initial amount and the maturity amount for an instrument measured at Amortized Cost?
The effective interest method.
What is a ‘credit loss’ as defined by IFRS 9?
The difference between all contractual cash flows due and all cash flows the entity expects to receive, discounted at the original effective interest rate (EIR).
The IFRS 9 impairment model is based on _____ credit losses, a change from the incurred loss model of IAS 39.
expected
Which financial instruments are subject to the IFRS 9 Expected Credit Loss (ECL) model?
- Debt instruments measured at amortized cost.
- Debt instruments at FVOCI.
- Trade receivables.
- Lease receivables.
- Irrevocable loan commitments.
Why does IFRS 9 require impairment rules for instruments at Amortized Cost and FVOCI, but not for those at FVTPL?
Because for FVTPL instruments, changes in value, including those from credit risk, are already fully recognized in the profit and loss statement.
What are ‘12-month expected credit losses’ (ECL)?
The portion of lifetime ECL that results from default events possible within 12 months after the reporting date.
What are ‘lifetime expected credit losses’ (ECL)?
The expected credit losses that result from all possible default events over the expected life of a financial instrument.
In the IFRS 9 three-stage impairment model, what is the criteria for classifying an instrument in Stage 1?
The instrument’s credit risk has not increased significantly since initial recognition.
What amount of loss provision is recognized for financial instruments in Stage 1?
A 12-month expected credit loss (ECL).
