31 December 2012

EFRAG: Draft comment letter on the IASB's ED/2012/4 Classification and Measurement: Limited Amendments to IFRS 9

In November 2012, the IASB issued Exposure Draft ED/2012/4 'Classification and Measurement: Limited Amendments to IFRS 9 (proposed amendments to IFRS 9 (2010))'.

EFRAG welcomes the IASB’s decision to consider making limited amendments to IFRS 9 and appreciates the effort made to address accounting mismatches arising from the application of different measurement models to financial assets and insurance liabilities.

However, EFRAG is concerned that there are still financial assets that would not pass the contractual cash flow characteristics, for different reasons, despite the fact that an amortised cost measurement would provide more useful information. In this respect, EFRAG’s invites constituents to provide with more examples than those already identified in the draft comment letter.

In addition, EFRAG believes that the definition of interest in IFRS 9 should be revised to clarify that it includes other components which are inherent in any theoretical definition of interest (e.g. liquidity risk). EFRAG recommends that the IASB modifies the definition of interest and explores further the appropriateness of the definition in light of the recent tentative decisions on the insurance contracts project.

EFRAG members did not reach a consensus on the IASB’s proposal to introduce a third business model in IFRS 9. EFRAG members have two distinct views and EFRAG invites constituents to comment on these. The two views are:

• that eligible debt instruments should be mandatorily measured at FV-OCI if they are held within a business model whose objective is both to collect contractual cash flows and to sell (the approach taken by the ED);
• that entities should be able to elect at initial recognition to measure eligible debt instruments at FV-OCI if by doing so accounting mismatches are reduced or eliminated.

EFRAG is also asking its constituents for their views on the IASB’s decision not to reintroduce bifurcation for financial assets, in particular whether they are aware of any circumstances in which bifurcation might still be needed. EFRAG also wishes to understand how constituents would strike the balance - having as objective the effectiveness of financial reporting - between requesting bifurcation of hybrid financial assets on a basis consistent with the principles in IFRS 9 and encouraging the IASB to complete IFRS 9 as quickly as possible.

Press release

Draft comment letter

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