IFRS 9 – Financial Instruments

IFRS 9 – Financial Instruments

IFRS 9 is in force as at 1 January 2018.

IFRS 9 establishes principles for the financial reporting of financial assets and financial liabilities.
At the moment you start selling on credit and issue invoices, you acquire the financial instruments – trade receivables.And IFRS 9 applies.

– IFRS 9 does not define financial instruments.
– IFRS 9 does not deal with your own equity instruments like your own shares, issued warrants.
– IFRS 9 does deal with the equity instruments of someone else.
– IFRS 9 does not deal with your investments in subsidiaries, associates and joint ventures.

A financial asset or a financial liability should be recognised in the statement of financial position when the entity becomes a party to the contract.

IFRS 9 classifies financial assets based on two characteristics:

Business model test: What is the objective of holding financial assets? Collecting the contractual cash flows? Selling?

Contractual cash flows’ characteristics test: Are the cash flows from the financial assets on the specified dates solely payments of principal and interest on the principal outstanding?


IFRS 9 requires entities to estimate expected credit losses for all relevant financial assets (mostly debt securities, receivables including lease receivables, contract assets under IFRS 15, loans), starting from when they first acquire a financial instrument.

Embedded derivatives

An embedded derivative is simply a component of a hybrid instrument that also includes a non-derivative host contract.

Find more information in this video.


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