IFRS for Financial Instruments Masterclass:
Practical applications of IFRS 9

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Singapore  (11-12 Dec 2019)

Workshop Overview

IFRS 9 defines the classification, measurements and impairment of financial instruments. The standard takes a prudent approach to impairment with the expected loss model, which result in earlier recognition of losses. There is increased income statement volatility as more assets will have to be measured at fair value where changes are recognised in profit and loss. There is also amended guidance for
the classification and measurement of financial assets with fair value through other comprehensive income for certain debt instruments.

IFRS 9 is effective from 1 January 2018. Some countries have deferred the adoption of IFRS 9. The standard will be effective in 2020 in Thailand (TFRS 9) and Indonesia (PSAK 71), and subsequently, 2025 in Vietnam. 

Contrary to widespread belief, IFRS 9 affects non-financial institutions too, especially those with long-term loans, equity investments or any non-vanilla financial assets.

The masterclass equips attendees with detailed understanding of the latest IFRS 9 standard, including financial assets, liabilities and derivatives. Attendees will know the potential impacts to the financial statements and how it should be addressed. Furthermore, attendees will gain insights with real world case studies, common issues faced and pitfalls to avoid.

    Key Takeaways

    The masterclass equips attendees with comprehensive understanding of the latest IFRS 9 standard, both for financial assets, liabilities and derivatives, including:

    • Difference between IFRS 9 and IAS 39
    • Classification and measurement of financial instruments
    • The effect on financial position, profitability and capital requirements
    • Impairment: how the expected loss model differs from the incurred loss model
    • Application of expected loss model to different portfolios of amortised cost assets
    • Fair value of financial liabilities and deterioration of institutions’ own credit
    • Hedge accounting and the recent IFRS changes: simplification of hedge accounting and minimisation of P&L volatility
    • Revised testing methodology eliminating the 80-125 rule
    • Foresight on new contracts and termination of existing contracts
    • Common challenges in the implementation of IFRS 9
    WHY YOU SHOULD ATTEND
    • Practical and hands-on workshop
    • Comprehensive materials covering all aspects of IFRS 9
    • Understanding of the “expected loss” impairment model
    • Review of hedge accounting with real-life case-studies
    • Understand the significant disclosure requirements
    Methodologies
    • Highly practical approach
    • Cases, examples, open discussions
    • Description and explanation of changes in IFRSs, including implementation  requirements and transitional rules
    • Use of illustrative financial statements and worked examples
    • Participants will need to bring laptops to work through the examples and case studies
    Who Should Attend
    • Chief financial officers
    • Financial controllers
    • Finance directors
    • Finance managers
    • Members of finance team
    • Accountants
    • Accounting policy staff
    • Audit partners
    • Audit managers
    • Internal auditors
    • Financial analysts
    • Portfolio managers
    • Securities analysts
    • Pension fund managers
    • Credit risk officers
    • Risk managers
    • Risk analysts
    • Investment analysts
    • Anyone who requires the knowledge of IFRS 9
    ProgramME Agenda

    Session 1: IFRS 9 OVERVIEW

    • What is IFRS 9? What are the differences between IFRS 9 with IAS 39?
    • The definition of financial assets and financial liabilities
    • The history and implementation overview of IFRS 9

    Session 2: FINANCIAL ASSETS CLASSIFICATION & MEASUREMENT 

    • Classification of financial assets based on
      • Business model for managing the asset (“the Business Model test”)
      • Asset’s contractual cash flows, whether they are solely payments of principal and interest (SPPI) (“the SPPI test”)
    • Classification and measurement of financial assets at
      • Amortised costs
      • Fair value through Profit & Loss (FVPL)
      • Fair value through Other Comprehensive Income (FVOCI)
    • Decision tree to decide on classification of financial instruments
    • Case study 1: Classify financial instruments to the relevant categories
    • Steps involved in applying the Business Model test
    • Factors to consider in applying the SPPI test, including:
      • Whether payment terms are “not genuine” or “de minimis”
      • Rights in bankruptcy or when non-payment happens
      • Prepayment and term extending options
      • Non-recourse arrangements
    • Fair value hierarchy that categorises the inputs to valuation techniques
      • Level 1 inputs are unadjusted quoted prices in active markets for identical assets
      • Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable either directly or indirectly
      • Level 3 inputs are unobservable inputs
    • Reclassification of financial assets when an entity changes its business model
    • Amendment on “Prepayment with negative compensation” and the definition of “reasonable” compensation?
    • Case study 2: The impact on financial statements for different types of debt & equity instruments

    Session 3: FINANCIAL ASSETS IMPAIRMENTS – EXPECTED CREDIT LOSSES

    • Impairment requirements applies to:
      • Debt instruments measured at amortised costs, eg. trade receivables, loan receivables from related parties, intercompany loans
      • Debt instruments measured at FVOCI, eg long dated government or corporate bond
      • Issued loan commitments and financial guarantee contracts (except those measured at FVPL)
      • Lease receivables within the scope of IFRS 16 Leases
      • Contract assets within the scope of IFRS 15 Revenue from Contracts with Customers
    • Three stages process to determine impairments
      • Stage 1: Credit risk has not increased significantly since initial recognition – recognise 12 months ECL, and recognise interest on a gross basis
      • Stage 2: Credit risk has increased significantly since initial recognition – recognise lifetime ECL, and recognise interest on a gross basis
      • Stage 3: Financial asset is credit impaired – recognise lifetime ECL, and present interest on a net basis
    • How to estimate lifetime ECL
    • Intercompany loans impairment
    • Accounting treatment for financial instruments already impaired when acquired
    • Case study 3: Assess the credit deterioration of a Greek bond throughout the crisis and its different stages
    • INT FRC agenda on
      • Credit enhancement in measuring ECL
      • Curing of credit impaired asset

    Session 4: FINANCIAL LIABILITIES & OWN CREDIT RISK

    • Financial liabilities classified at amortised cost unless
      • The financial liability is held for trading
      • The entity elects to measure the financial liability at FVPL
    • Changes in own credit risk is recognised in OCI, with no recycling
    • Two-step approach:
      • Determine changes in fair value of the financial liability as a whole
      • Perform a separate calculation to determine the change in fair value due to changes in entity’s own credit status
      • Difference in the two-step approach above recognised in P&L
    • Own credit deterioration reduces entities’ liabilities
    • Liability reduction due to rating downgrade to be now classified in OCI
    • Case study 4: Assess the impact on credit deterioration on entities’ own bonds

    Session 5: HEDGE ACCOUNTING

    • Qualification of hedge accounting
    • Different types of hedge accounting, same as IAS 39, except for time value of money and forward points in foreign exchange forward
      • Cash flow hedge
      • Fair value hedge
      • Net investment hedge for foreign subsidiaries
    • Accounting treatment for time value of money for options: a two step process through OCI
    • Accounting treatment for foreign currency forward points in OCI
    • IFRS 9 hedge accounting more closely aligned to risk management policy
      • Removal of hedge effectiveness criteria (80% to 125%)
      • Extends eligibility of risk component to include non-financial items
      • Permits aggregate exposure that includes a derivative to be eligible hedged item
      • Group of items and a net position (e.g. assets & liabilities or forecast sales & purchases) hedged collectively as group
    • Case study 5: Classify hedge transactions to the relevant categories
    • Case study 6: Value an interest rate swap accounted for as a cash flow hedge
    • Case study 7: Review and assess different hedge scenarios including risk component hedging, aggregate exposures and net position

    Session 6: PRESENTATION AND DISCLOSURE

    • Requirement of the presentation as separate line items in the P&L for
      • Revenue calculated using the effective interest method
      • Gains and losses from derecognition of financial assets measure at Amortised Cost
      • Impairment losses
      • Gain or loss due to reclassification from Amortised Cost to FVPL
    • Disclosure due to:
      • Classification and measurement
      • Credit risk

    Session 7: LATEST DEVELOPMENT ON IFRS 9

    • Targeted amendments in response to IBOR reform
    • Financial Instruments with Characteristics of Equity (FICE)
    • IAS 12, Income Taxes – Income Tax Consequences of Payments on Financial Instruments Classified as Equity (Annual Improvements) (effective 1 Jan 2019)