Accounting Essay

607 Words Sep 12th, 2013 3 Pages
Introduction
The IASB has decided to review the standards for financial instruments formulating a new financial instrument standard, IFRS 9

AASB 9 introduces new requirements for classifying and measuring financial assets, as follows: * Debt instruments meeting both a 'business model' test and a 'cash flow characteristics' test are measured at amortised cost (the use of fair value is optional in some limited circumstances) * Investments in equity instruments can be designated as 'fair value through other comprehensive income' with only dividends being recognised in profit or loss * All other instruments (including all derivatives) are measured at fair value with changes recognised in the profit or loss * The concept of
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* (c) Financial assets can be designated and measured at fair value through profit or loss at initial recognition if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would arise from measuring assets or liabilities, or recognising the gains and losses on them, on different bases.AASB 9 7 PREFACE * (d) Hybrid contracts with financial asset hosts are classified and measured in their entirety in accordance with the classification criteria. (The treatment of embedded derivatives in respect of financial liability hosts has not changed.) * (e) Investments in unquoted equity instruments (and contracts on those investments that must be settled by delivery of the unquoted equity instrument) must be measured at fair value. However, in limited circumstances, cost may be an appropriate estimate of fair value. * (f) Investments in contractually linked instruments that create concentrations of credit risk (tranches) are classified and measured using a ‘look through’ approach. Such an approach looks to the underlying assets generating cash flows and assesses the cash flows against the classification criteria (discussed in (a) above) to determine whether the investment is measured at fair value or amortised cost. * (g) Financial assets are reclassified only in the rare circumstances when there is a relevant change in the entity’s business model. * (h) The

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