aCCOUNTING STANDARD AASB 9
The Australian Accounting Standards Board made Accounting Standard AASB 9 Financial Instruments under section 334 of the Corporations Act 2001 on 7 December 2009.
This compiled version of AASB 9 applies to annual reporting periods beginning on or after 1 January 2018. It incorporates relevant amendments contained in other AASB Standards made by the AASB up to and including 17 December 2014 (see Compilation Details).
aCCOUNTING STANDARD AASB 9
Financial Instruments
Chapter 1 Objective and Application
1.1 The objective of this Standard is to establish principles for the financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of the entity’s future cash flows.
Aus1.2 This Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus1.3 This Standard applies to annual reporting periods beginning on or after 1 January 2018 and may be applied early only as set out in paragraph Aus1.4. However, AASB 9 (December 2010) and AASB 9 (December 2014) supersede this Standard. An entity shall apply AASB 9 (December 2014) for annual reporting periods beginning on or after 1 January 2018.
[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]
Aus1.4 This Standard may be applied to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2018. However, for those periods, an entity may elect to apply this Standard if, and only if, the entity’s date of initial application (as described in paragraph 8.2.2) is before 1 February 2015. If an entity elects to apply this Standard it shall disclose that fact and at the same time apply the amendments in AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (as amended) and the amendments set out in paragraphs 58-60 of Part E of AASB 2014-1 Amendments to Australian Accounting Standards.
Aus1.5 [Deleted by the AASB]
Aus1.6 When applied or operative, this Standard supersedes the classification and measurement requirements for financial assets in AASB 139 Financial Instruments: Recognition and Measurement issued in July 2004.
Chapter 2 Scope
2.1 An entity shall apply this Standard to all assets within the scope of AASB 139 Financial Instruments: Recognition and Measurement.
Chapter 3 Recognition and derecognition
3.1 Initial recognition of financial assets
3.1.1 An entity shall recognise a financial asset in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument (see paragraphs AG34 and AG35 of AASB 139). When an entity first recognises a financial asset, it shall classify it in accordance with paragraphs 4.1-4.5 and measure it in accordance with paragraphs 5.1.1-5.1.2.
3.1.2 A regular way purchase or sale of a financial asset shall be recognised and derecognised in accordance with paragraphs 38 and AG53-AG56 of AASB 139.
Chapter 4 Classification
4.1 Unless paragraph 4.5 applies, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value on the basis of both:
(a) the entity’s business model for managing the financial assets; and
(b) the contractual cash flow characteristics of the financial asset.
4.2 A financial asset shall be measured at amortised cost if both of the following conditions are met:
(a) the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows.
(b) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
Paragraphs B4.1-B4.26 provide guidance on how to apply these conditions.
4.3 For the purpose of this Standard, interest is consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time.
4.4 A financial asset shall be measured at fair value unless it is measured at amortised cost in accordance with paragraph 4.2.
Option to designate a financial asset at fair value through profit or loss
4.5 Notwithstanding paragraphs 4.1-4.4, an entity may, at initial recognition, designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an ‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see paragraphs AG4D-AG4G of AASB 139).
Embedded derivatives
4.6 An embedded derivative is a component of a hybrid contract that also includes a non-derivative host – with the effect that some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an embedded derivative, but a separate financial instrument.
4.7 If a hybrid contract contains a host that is within the scope of this Standard, an entity shall apply the requirements in paragraphs 4.1-4.5 to the entire hybrid contract.
4.8 If a hybrid contract contains a host that is not within the scope of this Standard, an entity shall apply the requirements in paragraphs 11-13 and AG27-AG33B of AASB 139 to determine whether it must separate the embedded derivative from the host. If the embedded derivative must be separated from the host, the entity shall:
(a) classify the derivative in accordance with either paragraphs 4.1-4.4 for derivative assets or paragraph 9 of AASB 139 for all other derivatives; and
(b) account for the host in accordance with other Australian Accounting Standards.
Reclassification
4.9 When, and only when, an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with paragraphs 4.1-4.4.
Chapter 5 Measurement
5.1 Initial measurement of financial assets
5.1.1 Except for trade receivables within the scope of paragraph 5.1.2, at initial recognition, an entity shall measure a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset.
5.1.1A However, if the fair value of the financial asset at initial recognition differs from the transaction price, an entity shall apply paragraph B5.1 and paragraph AG76 of AASB 139.
5.1.2 Notwithstanding the requirement in paragraph 5.1.1, at initial recognition, an entity shall measure trade receivables that do not have a significant financing component (determined in accordance with AASB 15 Revenue from Contracts with Customers) at their transaction price (as defined in AASB 15).
5.2 Subsequent measurement of financial assets
5.2.1 After initial recognition, an entity shall measure a financial asset in accordance with paragraphs 4.1-4.5 at fair value or amortised cost.
5.2.2 An entity shall apply the impairment requirements in paragraphs 58-65 and AG84-AG93 of AASB 139 to financial assets measured at amortised cost.
5.2.3 An entity shall apply the hedge accounting requirements in paragraphs 89-102 of AASB 139 to a financial asset that is designated as a hedged item (see paragraphs 78-84 and AG98-AG101 of AASB 139).
5.3 Reclassification
5.3.1 If an entity reclassifies financial assets in accordance with paragraph 4.9, it shall apply the reclassification prospectively from the reclassification date. The entity shall not restate any previously recognised gains, losses or interest.
5.3.2 If, in accordance with paragraph 4.9, an entity reclassifies a financial asset so that it is measured at fair value, its fair value is measured at the reclassification date. Any gain or loss arising from a difference between the previous carrying amount and fair value is recognised in profit or loss.
5.3.3 If, in accordance with paragraph 4.9, an entity reclassifies a financial asset so that it is measured at amortised cost, its fair value at the reclassification date becomes its new carrying amount.
5.4 Gains and losses
5.4.1 A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship (see paragraphs 89-102 of AASB 139) shall be recognised in profit or loss unless the financial asset is an investment in an equity instrument and the entity has elected to present gains and losses on that investment in other comprehensive income in accordance with paragraph 5.4.4.
5.4.1A Dividends are recognised in profit or loss only when:
(a) the entity’s right to receive payment of the dividend is established;
(b) it is probable that the economic benefits associated with the dividend will flow to the entity; and
(c) the amount of the dividend can be measured reliably.
5.4.2 A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship (see paragraphs 89-102 of AASB 139) shall be recognised in profit or loss when the financial asset is derecognised, impaired or reclassified in accordance with paragraph 5.3.2, and through the amortisation process.
5.4.3 A gain or loss on financial assets that are:
(a) hedged items (see paragraphs 78-84 and AG98-AG101 of AASB 139) shall be recognised in accordance with paragraphs 89-102 of AASB 139.
(b) accounted for using settlement date accounting shall be recognised in accordance with paragraph 57 of AASB 139.
Investments in equity instruments
5.4.4 At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument within the scope of this Standard that is not held for trading and is also not contingent consideration of an acquirer in a business combination to which AASB 3 Business Combinations applies.
5.4.5 If an entity makes the election in paragraph 5.4.4, it shall recognise in profit or loss dividends from that investment in accordance with paragraph 5.4.1A.
Chapter 6 Hedge accounting – [not used]
Chapter 7 Disclosures – [not used]
Chapter 8 Effective date and transition
8.1 Effective date
8.1.1 [Deleted by the AASB – see paragraphs Aus1.3 and Aus1.4]
8.1.2 [Deleted by the AASB]
8.1.3 AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13, issued in September 2011, amended paragraphs 5.1.1, 5.2.1, 5.3.2, 8.2.5, 8.2.11, B5.1, B5.5 and B5.7, and added paragraph 5.1.1A. An entity shall apply those amendments when it applies AASB 13.
8.1.4 AASB 2014-1 Amendments to Australian Accounting Standards, issued in June 2014, amended paragraph 5.4.4 as a consequential amendment derived from the amendments to paragraphs 40, 58 and 67A of AASB 3. An entity shall apply that amendment prospectively to business combinations to which the amendment to AASB 3 applies.
8.1.5 AASB 2014-5 Amendments to Australian Accounting Standards arising from AASB 15, issued in December 2014, amended paragraphs 3.1.1, 5.1.1, 5.4.5 and B5.12. Paragraphs 5.1.2 and 5.4.1A, and a definition to Appendix A, were added. An entity shall apply those amendments when it applies AASB 15.
8.2 Transition
8.2.1 An entity shall apply this Standard retrospectively, in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, except as specified in paragraphs 8.2.4-8.2.13. This Standard shall not be applied to financial assets that have already been derecognised at the date of initial application.
8.2.2 For the purposes of the transition provisions in paragraphs 8.2.3-8.2.13, the date of initial application is the date when an entity first applies the requirements of this Standard. The date of initial application may be:
(a) any date between the issue of this Standard and 31 December 2010, for entities initially applying this Standard before 1 January 2011; or
(b) the beginning of the first reporting period in which the entity adopts this Standard, for entities initially applying this Standard on or after 1 January 2011.
8.2.3 If the date of initial application is not at the beginning of a reporting period, the entity shall disclose that fact and the reasons for using that date of initial application.
8.2.4 At the date of initial application, an entity shall assess whether a financial asset meets the condition in paragraph 4.2(a) on the basis of the facts and circumstances that exist at the date of initial application. The resulting classification shall be applied retrospectively irrespective of the entity’s business model in prior reporting periods.
8.2.5 If an entity measures a hybrid contract at fair value in accordance with paragraph 4.4 or paragraph 4.5 but the fair value of the hybrid contract had not been measured in comparative reporting periods, the fair value of the hybrid contract in the comparative reporting periods shall be the sum of the fair values of the components (i.e. the non-derivative host and the embedded derivative) at the end of each comparative reporting period.
8.2.6 At the date of initial application, an entity shall recognise any difference between the fair value of the entire hybrid contract at the date of initial application and the sum of the fair values of the components of the hybrid contract at the date of initial application:
(a) in the opening retained earnings of the reporting period of initial application if the entity initially applies this Standard at the beginning of a reporting period; or
(b) in profit or loss if the entity initially applies this Standard during a reporting period.
8.2.7 At the date of initial application, an entity may designate:
(a) a financial asset as measured at fair value through profit or loss in accordance with paragraph 4.5; or
(b) an investment in an equity instrument as at fair value through other comprehensive income in accordance with paragraph 5.4.4.
Such designation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
8.2.8 At the date of initial application, an entity:
(a) shall revoke its previous designation of a financial asset as measured at fair value through profit or loss if such financial asset does not meet the condition in paragraph 4.5.
(b) may revoke its previous designation of a financial asset as measured at fair value through profit or loss if such financial asset meets the condition in paragraph 4.5.
Such revocation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
8.2.9 At the date of initial application, an entity shall apply paragraph 103M of AASB 139 to determine when it:
(a) may designate a financial liability as measured at fair value through profit or loss; and
(b) shall or may revoke its previous designation of a financial liability as measured at fair value through profit or loss.
Such revocation shall be made on the basis of the facts and circumstances that exist at the date of initial application. That classification shall be applied retrospectively.
8.2.10 If it is impracticable (as defined in AASB 108) for an entity to apply retrospectively the effective interest method or the impairment requirements in paragraphs 58-65 and AG84-AG93 of AASB 139, the entity shall treat the fair value of the financial asset at the end of each comparative period as its amortised cost if the entity restates prior periods. In those circumstances, the fair value of the financial asset at the date of initial application shall be treated as the new amortised cost of that financial asset at the date of initial application of this Standard.
8.2.11 If an entity previously accounted for an investment in an equity instrument that does not have a quoted price in an active market for an identical instrument (i.e. a Level 1 input) (or a derivative that is linked to and must be settled by delivery of such an equity instrument) at cost in accordance with AASB 139, it shall measure that instrument at fair value at the date of initial application. Any difference between the previous carrying amount and fair value shall be recognised in the opening retained earnings of the reporting period that includes the date of initial application.
8.2.12 Notwithstanding the requirement in paragraph 8.2.1, an entity that adopts this Standard for reporting periods:
(a) beginning before 1 January 2012 need not restate prior periods and is not required to provide the disclosures set out in paragraphs 44S-44W of AASB 7;
(b) beginning on or after 1 January 2012 and before 1 January 2013 shall elect either to provide the disclosures set out in paragraphs 44S-44W of AASB 7 or to restate prior periods; and
(c) beginning on or after 1 January 2013 shall provide the disclosures set out in paragraphs 44S-44W of AASB 7. The entity need not restate prior periods.
If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application.
8.2.13 If an entity prepares interim financial reports in accordance with AASB 134 Interim Financial Reporting the entity need not apply the requirements in this Standard to interim periods prior to the date of initial application if it is impracticable (as defined in AASB 108).