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 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