TAX IMPLICATIONS OF THE ADOPTION OF IFRS 9 (replacement of IAS 39)
IFRS 9 is effective for annual periods beginning on or after January 2018
Over time, the preparers of financial statements, users of financial statements and auditors have found the requirements for reporting financial instruments complex. The alteration and modification of present financial instruments accounting is one of the areas which was identified in the NORWALK AGREEMENT of 2002 between the IASB and the US financial accounting standards board (FASB). As a result of this agreement, series of projects were undertaken in order to eliminate variety of difference between IFRS and US GAAP.
Projects for improvements introduced by IFRS 9 are ranging from:
• Logical model for classification and measurement
• Single forward looking expected loss impairment model
• Substantially reformed approach to HEDGE ACCOUNTING
Hedge accounting or “hedging” can be described as a risk management strategy used in limiting / offsetting the probability of loss from fluctuation in the prices of commodities, currencies or securities. Basically, hedging is a means of transferring risk without buying an insurance policy.
Hedging is also used in protecting ones capital against effects of inflation through investing in high yield financial instruments (bonds, notes, shares) real estate or precious metals.
Prior to 2014, the IASB had published versions of IFRS 9 that introduced new classification and measurement requirements in (2009 & 2010) and a new hedge accounting model in 2013. In 2014, the publication released by the IASB represented the final version of the standard, which replaced the earlier versions of IFRS 9 and completes the IASB project to replace the IAS 39 financial instruments; recognition and measurement.
This final version is built on a logical, single, classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow...