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THIS ARTICLE IS THE SECOND OF A THREE-PART SERIES ON THE REQUIREMENTS OF THE FINAL IFRS 9 FINANCIAL INSTRUMENTS. IN THIS PART GENEVIEVE NAIK TAKES A LOOK AT FINANCIAL LIABILITIES
Whilst some entities breathe a sigh of relief that the mandatory effective date of the final IFRS 9 has been pushed out to 1 January 2018, others have chosen to voluntarily adopt various versions of the unfinished standard. Why? One of the reasons may be the changes introduced in respect of financial liabilities. In particular, specific reference in IFRS 9 to fair value changes attributable to an entity's own credit risk seems to have highlighted a rather interesting "accounting anomaly" - as an entity's credit risk increases, the fair value of its financial liabilities decreases. The impact? Entities that designate financial liabilities under the fair value option will recognise gains as their credit ratings decrease. A closer look at the changes may reveal more.
THE FAIR VALUE OPTION
Under IFRS 9, entities still have the ability to designate, at initial recognition, a financial liability as measured at fair value through profit or loss (the fair value option). IAS 39 Financial Instruments: Recognition and Measurements currently requires all fair value measurement gains and losses to be included in profit or loss. By contrast, IFRS 9 generally requires all gains and losses attributable to...