IFRS 9 Financial Instruments
IFRS 9 Financial Instruments
26 October 2018
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Agenda
-- Overview of requirements of IFRS 9
-- Incorporation of forward looking information
-- Considerations for modelling
-- Changes in accounting policies and disclosures
-- Are you ready? - Way forward
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Your facilitators are...
Joseph Kariuki
Stephen Obock
Steve Yegon
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Overview of IFRS 9
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Effective date
Impact assessment & Considerations: Operating model Expected loss model Data/systems and controls Disclosures and reporting
Issue date 24 July 2014
Effective date 1 January 2018
2014
2015/ 2016
TEST
2017
RUN
2018
June
Dec
Early adoption permitted
Interim reports
Annual report 31 Dec 2018
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Overview of IFRS 9
Classification and measurement
Technical considerations
Business model assessment (held to collect/sell)
Solely Payments of Principal and Interest: `SPPI test'
Key considerations
Portfolio segmentation Leverage Prepayment/extension options Contractually-linked instruments
Impairment
Expected credit loss Definition of default `Staging' criteria Economic scenarios
Portfolio segmentation
Long outstanding trade receivables?
Quality of data?
Hedging
Limited analysis and impact
FVOCI: Fair value through other comprehensive income (equity) FVTPL: Fair value through profit and loss
Technical treatment
Re-designation of assets to either:
Amortised Cost
FVOCI
FVTPL
Impairment Move from incurred loss to:
Lifetime expected credit loss
12-month expected credit loss
Limited relaxation of hedge accounting rules
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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Overview - Classification &Measurement
IFRS 9 introduces a two-step approach to determine the classification of financial assets: 1. Business model assessment and 2. Solely payments of principal and interest (`SPPI') assessment
Business model
-- Considers how financial assets are managed to generate cash flows
-- Assessed at portfolio level (not instrument level)
-- Sub-division of portfolios may be appropriate
Examples of key challenges: -- Assessment of impact of sales activity -- Data needed for analysis of historical sales -- Prospective view -- Securitisation activities
SPPI
-- Considers whether contractual cash flows are consistent with a basic lending arrangement
-- Principal = initial fair value of financial asset -- Interest = consideration for time value of
money and credit risk
Judgemental aspects:
-- Prepayment/extension options -- Receivables with significant financing
component
-- Leverage -- Contractually linked instruments
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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C&M: IAS 39 versus IFRS 9
IAS 39 Category
Fair value
Available for sale
Held to maturity
Loans and receivables
Contractual analysis
Fair value Fair value through other comprehensive income
Amortised cost
SPPI test
IFRS 9 Category
Trade and other
Held to collect and sell
Held to collect
? 2018 KPMG Kenya is a registered partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
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