The Financial Reporting Council (FRC) has published a thematic review of Disclosures in the First Year of Application of IFRS 9. Below is an overview of the main messages which non-banking entities should bear in mind when preparing their financial statements.

Classification and measurement

• Even when non-banking entities use the expected held-to-collect (HtC) business model it should be explained in the accounts.
• Accounting policies should be clear, concise and relevant; inclusion of policies which are not relevant only creates unnecessary clutter.
• Old IAS 39 terminology must be updated for the new standard.

Impairment

• Parent companies should also consider the impact of IFRS 9 on the impairment of financial assets in their individual accounts. In particular, loans to subsidiaries will often be material.
• There should be adequate disclosure of the credit quality of financial assets and movements in loan loss provisions as required by IFRS 7.
• For trade receivables, contract assets and lease receivables disclosures, the gross carrying amount of financial assets by credit risk rating grades, can be based on a provision matrix or on days past due.
• If an entity holds material contract balances they need to apply the impairment requirements.
• Impairment policies cannot be defined on an incurred loss basis.
• Where determination of Expected Credit Losses (ECL) is identified as a source of estimation uncertainty, details of the key assumptions and a sensitivity analysis should be provided.

Hedging

If entities do not continue to use IAS 39’s hedge accounting requirements, existing hedges must be carried over and the effect of IFRS 9 adequately explained.

When IFRS 9’s hedge accounting requirements are adopted, it is necessary to apply the requirements prospectively, including updating relevant hedge documentation.

The disclosure requirements in IFRS 7 have been enhanced on adoption of IFRS 9, requiring more detailed disclosures in respect of hedging arrangements. These additional disclosures apply even if an entity continues using IAS 39’s hedging requirements.

For further information, please speak to Paul Merris.