IFRS 9: financial reporting
As a listed organization, there are many rules to follow in order to ensure the progress of the organization. In financial terms, there are many rules to follow, which for some organizations seems almost impossible. Financial reporting is in any case decisive for organizations. In order to keep this reporting on the right track, certain systems have been developed such as IAS (International Accounting Standards) and IFRS (International Financial Reporting Standards). We will discuss the latter in more detail in this article and specifically IFRS 9. In 2014, the International Accounting Standards Board (IASB) published standard IFRS 9 for the reporting of financial instruments. It replaces most of its predecessor IAS 39. It applies to all financial years started on or after January 1, 2018. This is because, according to the financial institution IASB, the previous standard was difficult to apply, if at all, and was subsequently difficult to understand. The new system IFRS 9 thus simplifies financial reporting. Non-listed companies may use this system. Its use is also mandatory for all listed companies in the Netherlands. The system has the ultimate goal of providing a balance between costs and benefits. The rules of the system thus lead to insights into all income and expenditure, which enables one to determine to what extent an organization is liquid.
The SPPI test and the three different accounting policies of IFRS 9
The SPPI test
The SPPI test is used to determine whether the cash flows generated are from payments of principal and interest. The IRFS 9 system includes clear definitions for the terms principal and interest so that any organization knows how to apply the SPPI in practice.
The IFRS 9 system has a number of different accounting policies. These valuation principles form the basis for the quality of the financial instruments on your company’s balance sheet. We list the three different instruments here for you:
- Amortized cost;
- Fair value through equity;
- Fair value with change in value in the income statement.
The initial measurement basis is the amount at which the asset or liability will first be recognized in the balance sheet, less principal repayment, plus or minus the cumulative amortization of the amount determined using the effective interest method based on amortized cost. , the original amount and the redemption amount less amortization (either directly or through the establishment of provisions) due to write-downs or uncollectible receivables. The second measurement basis is the fair value of equity. There is little difference in message between the latter two instruments. The only caveat is that the change in value as indicated occurs in the company’s results rather than equity. It is still useful to address exactly what fair value means in these instruments. The IASB defines it as follows: „the amount for which an asset could be exchanged in an arm’s length transaction between knowledgeable, willing parties“.
IFRS 9: to conclude
You’ve been able to read how important financial reporting is to companies. In the case of listed companies, IFRS 9 has been mandatory as the financial reporting system since 2014. You have been able to read about the SPPI test. Furthermore, there are three valuation principles for IRFS 9 focused on amortized cost and fair value with change in value of both equity and earnings. If you would like to know more about this topic, please continue to look at: annualreporting.info.
