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About the course
Master IFRS 9 and the reporting standards for Financial Instruments
International Financial Reporting Standard 9 (“IFRS 9”) is the accounting standard for financial instruments, which defines the classification, measurements and impairment of financial instruments. It is designed to make annual reports more meaningful to investors as well as simplify how auditors implement the rules and introduce safeguards to limit credit losses.
In July 2014, after several years of delay, the accounting regulators published the final text of IFRS 9. This combines revised versions of previously published sections with the first publication of the final and most controversial impairment section. IFRS 9 will become effective in 2018.
Through a mix of lecture and case studies, this IFRS and Financial Instruments training will equip participants to achieve a detailed understanding of the latest IFRS 9 standard, both for financial assets, liabilities and derivatives, including:
- The classification and measurement of financial instruments;
- The new impairment methodology based on expected losses;
- The fair value of financial liabilities and deterioration of institutions’ own credit;
- The different types of hedge accounting and the recent IFRS changes.
Session 1 - Introduction
- What is IFRS 9? How does it differ from IAS -39?
- What are financial assets and financial liabilities?
- IFRS 9 history and implementation overview
Session 2 – Financial Assets Classification & Measurement
- Presentation of the three different categories
- Amortised Costs;
- Fair value through Profit & Loss (FVTPL);
- Fair value through Other Comprehensive Income (FVTOCI)
- Accounting treatment determined by (i) business model (ii) nature of cash flows
- Decision tree to decide on classification of financial instruments
- Balance sheet and P&L calculation of a bond at amortized cost
- Based on the Internal Rate of Return (IRR) of future cash flows
- Treatment of fees in the IRR calculation
- Balance sheet and P&L calculation of a bond at FVTPL and FVTOCI
- Effective interest rate method for interests (same as amortised costs)
- Unrealised gain based on NPV at current yield of future cash flows
- Reminder on determining fair value
- Level 1 based on unadjusted quoted price
- Level 2 based on quoted price in inactive markets or observable model input
- Level 3 based on unobservable but significant inputs to the overall value
Case Study #1: participants will be presented with a few financial instruments and will classify them in their relevant categories
Case Study #2: participants will compute on Excel the impact on balance and P&L for different types of debt & equity instruments
Session 3 – Financial Assets Impairments
- Applies to amortized cost and FVTOCI mandatory fixed income instruments
- Incurred losses (IAS 39) has been replaced by expected losses (IFRS 9)
- Three stages process to determine impairments
- Stage 1: “12-month expected credit losses” with effective interest rate on gross on gross carrying amount
- Stage 2: “life-time expected credit losses” with effective interest rate on gross on gross carrying amount
- Stage 3: “life-time expected credit losses” with effective interest rate on gross on amortised costs
- Accounting treatment for financial instruments already impaired when acquired
Case Study #3: participants will assess the credit deterioration of a Greek bond throughout the crisis and its different stages
Session 4 – Financial Liabilities & Own Credit
- Financial liabilities at amortised cost or FVTPL
- Own credit deterioration reduces institutions’ liabilities
- Liability reduction due to rating downgrade to be now classified in OCI
Case Study #4: participants will assess the impact on credit deterioration on institutions’ own bonds Session 5 – Hedge Accounting
- Qualification for hedge accounting
- Different types of hedge accounting, same as IAS 39, except for time value of money and forward points in foreign exchange forward
- Cash flow hedge
- Fair value hedge
- Net investment hedge for foreign subsidiaries• Accounting treatment for time value of money for options: a two-step process through OCI
- Accounting treatment for foreign currency forward points in OCI
- IFRS 9 hedge accounting more closely aligned to risk management policy
- Removal of hedge effectiveness criteria (80% to 125%)
- Extends eligibility of risk component to include non-financial items
- Permits aggregate exposure that includes a derivative to be eligible hedged item
- Group of items and a net position (e.g. assets & liabilities or forecast sales & purchases) hedged collectively as group
Case Study #5: participants will classify a few hedging transactions in their relevant categories
Case Study #6: participants will value an interest rate swap accounted for as a cash flow hedge
Case Study #7: participants will review and assess different hedge scenarios including risk component hedging, aggregate exposures and net position
Serge is an experienced Corporate Finance professional with over 20 years’ experience in M&A and capital market transactions. He has successfully completed in excess of EUR 30 billion across multiple geographies (US, Europe, MENA).He began his career as a Credit Analyst at Banque Continentale...
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