AASB 9 Financial Instruments replaced the legacy AASB 139 Financial Instruments: Recognition and Measurement effective for years ended 30 June 2019.
This new standard resulted in significant changes for most entities reporting under Australian accounting standards, particularly:
- the method of calculation of allowances for doubtful debts
- presentation, recognition and measurement of financial instruments, generally.
The adoption of AASB 9 resulted in the adoption of the “Expected Credit Losses” model of provisioning — requiring preparers to consider the potential for future losses based on available information rather than allowing for impairment as-and-when actual losses were identified. As a result, complexity has also increased on common topics, particularly accounting for related-party loans.
Certain reliefs were provided related to certain relatively uncommon topics, including hedge accounting, allowing for the simpler designation of hedging pools and reductions in on-going compliance requirements.
Financial instruments remain a highly complex topic — the accounting standard extends over 100 pages and it often feels like it leaves more questions than answers. Individual contracts may contain one to all of the following:
- Call & put options
- Foreign currency exchanges
- Fixed debt-to-equity conversion features
- Variable debt-to-equity conversion features
- Variable interest payments
- Variable principal amounts
- Both debt and equity features.
How we can help
- Provide you with technical accounting advice on instruments
- Assist with valuation for instruments with multiple elements
- Prepare work papers, including establishment of models to assist with determination of expected credit losses
Head of National Assurance QualityContact Merilyn