Author: Phnom Penh HR

Objective

This Standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. The objective is to ensure that lessees and lessors provide relevant information in a manner that faithfully represents those transactions. This information gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of an entity.

Scope

An entity shall apply this Standard to all leases, including leases of right-of-use assets in a sublease, except for:

• leases to explore for or use minerals, oil, natural gas and similar nonregenerative resources;
• leases of biological assets within the scope of IAS 41 Agriculture held by a lessee;
• service concession arrangements within the scope of IFRIC 12 Service Concession Arrangements;
• licences of intellectual property granted by a lessor within the scope of IFRS 15 Revenue from Contracts with Customers; and
• rights held by a lessee under licensing agreements within the scope of IAS 38 Intangible Assets for such items as motion picture films, video recordings, plays, manuscripts, patents and copyrights

Recognition

lessee may elect not to apply the requirements in paragraphs 22–49 to:

• short-term leases; and
• leases for which the underlying asset is of low value (as described in paragraphs B3–B8).

At the commencement date, a lessee shall recognise a right-of-use asset and a lease liability.

Measurement

At the commencement date, a lessee shall measure the right-of-use asset at cost.

Defined terms

commencement date of the lease (commencement date) The date on which a lessor makes an underlying asset available for use by a lessee.

economic life Either the period over which an asset is expected to be economically usable by one or more users or the number of production or similar units expected to be obtained from an asset by one or more users.

effective date of the modification The date when both parties agree to a lease modification

fair value For the purpose of applying the lessor accounting requirements in this Standard, the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction

finance lease A lease that transfers substantially all the risks and rewards incidental to ownership of an underlying asset.

fixed payments Payments made by a lessee to a lessor for the right to use an underlying asset during the lease term, excluding variable lease payments.

gross investment in the lease The sum of: (a) the lease payments receivable by a lessor under a finance lease; and (b) any unguaranteed residual value accruing to the lessor

inception date of the lease (inception date) The earlier of the date of a lease agreement and the date of commitment by the parties to the principal terms and conditions of the lease.

initial direct costs Incremental costs of obtaining a lease that would not have been incurred if the lease had not been obtained, except for such costs incurred by a manufacturer or dealer lessor in connection with a finance lease.

interest rate implicit in the lease The rate of interest that causes the present value of

1. the lease payments and
2. the unguaranteed residual value to equal the sum of

• the fair value of the underlying asset and
• any initial direct costs of the lessor.

lease A contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.

lease incentives Payments made by a lessor to a lessee associated with a lease, or the reimbursement or assumption by a lessor of costs of a lessee.

lease modification A change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term).

lease payments Payments made by a lessee to a lessor relating to the right to use an underlying asset during the lease term, comprising the following:

• fixed payments (including in-substance fixed payments ), less any lease incentives;
• variable lease payments that depend on an index or a rate;
• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and
• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component.

For the lessee, lease payments also include amounts expected to be payable by the lessee under residual value guarantees. Lease payments do not include payments allocated to non-lease components of a contract, unless the lessee elects to combine non-lease components with a lease component and to account for them as a single lease component.

lease term The non-cancellable period for which a lessee has the right to use an underlying asset, together with both: (a) periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option; and (b) periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option.

lessee An entity that obtains the right to use an underlying asset for a period of time in exchange for consideration.

lessee’s incremental borrowing rate The rate of interest that a lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-ofuse asset in a similar economic environment.

lessor An entity that provides the right to use an underlying asset for a period of time in exchange for consideration.

net investment in the lease The gross investment in the lease discounted at the interest rate implicit in the lease.

operating lease A lease that does not transfer substantially all the risks and rewards incidental to ownership of an underlying asset.

optional lease payments Payments to be made by a lessee to a lessor for the right to use an underlying asset during periods covered by an option to extend or terminate a lease that are not included in the lease term.

period of use The total period of time that an asset is used to fulfil a contract with a customer (including any non-consecutive periods of time).

residual value guarantee A guarantee made to a lessor by a party unrelated to the lessor that the value (or part of the value) of an underlying asset at the end of a lease will be at least a specified amount.

right-of-use asset An asset that represents a lessee’s right to use an underlying asset for the lease term.

short-term lease A lease that, at the commencement date, has a lease term of 12 months or less. A lease that contains a purchase option is not a short-term lease.

sublease A transaction for which an underlying asset is re-leased by a lessee (‘intermediate lessor’) to a third party, and the lease (‘head lease’) between the head lessor and lessee remains in effect.

underlying asset An asset that is the subject of a lease, for which the right to use that asset has been provided by a lessor to a lessee.

unearned finance income The difference between:

• the gross investment in the lease; and
• the net investment in the lease.

unguaranteed residual value That portion of the residual value of the underlying asset, the realisation of which by a lessor is not assured or is guaranteed solely by a party related to the lessor.

variable lease payments The portion of payments made by a lessee to a lessor for the right to use an underlying asset during the lease term that varies because of changes in facts or circumstances occurring after the commencement date, other than the passage of time.

Disclosure

The objective of the disclosures is for lessors to disclose information in the notes that, together with the information provided in the statement of financial position, statement of profit or loss and statement of cash flows, gives a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessor. Paragraphs 90–97 specify requirements on how to meet this objective.

A lessor shall disclose the following amounts for the reporting period:

1. for finance leases:

• selling profit or loss;
• finance income on the net investment in the lease; and
• income relating to variable lease payments not included in the measurement of the net investment in the lease.

2. for operating leases, lease income, separately disclosing income relating to variable lease payments that do not depend on an index or a rate.

Objective

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

Scope

An entity shall apply this Standard to all contracts with customers, except the following:

• lease contracts within the scope of IFRS 16 Leases;
• contracts within the scope of IFRS 17 Insurance Contracts. However, an entity may choose to apply this Standard to insurance contracts that have as their primary purpose the provision of services for a fixed fee in accordance with paragraph 8 of IFRS 17;
• financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures; and
• non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers. For example, this Standard would not apply to a contract between two oil companies that agree to an exchange of oil to fulfil demand from their customers in different specified locations on a timely basis

Recognition

An entity shall account for a contract with a customer that is within the scope of this Standard only when all of the following criteria are met:

• the parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) and are committed to perform their respective obligations;
• the entity can identify each party’s rights regarding the goods or services to be transferred;
• the entity can identify the payment terms for the goods or services to be transferred;
• the contract has commercial substance (ie the risk, timing or amount of the entity’s future cash flows is expected to change as a result of the contract); and
• it is probable that the entity will collect the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer. In evaluating whether collectability of an amount of consideration is probable, an entity shall consider only the customer’s ability and intention to pay that amount of consideration when it is due. The amount of consideration to which the entity will be entitled may be less than the price stated in the contract if the consideration is variable because the entity may offer the customer a price concession (see paragraph 52).

Measurement

When (or as) a performance obligation is satisfied, an entity shall recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained in accordance with paragraphs 56–58) that is allocated to that performance obligation

Defined terms

contract An agreement between two or more parties that creates enforceable rights and obligations.

contract asset An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

contract liability An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

customer A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration.

income Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.

performance obligation A promise in a contract with a customer to transfer to the customer either:

• a good or service (or a bundle of goods or services) that is distinct; or
• a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.

revenue Income arising in the course of an entity’s ordinary activities.

stand-alone selling price (of a good or service) The price at which an entity would sell a promised good or service separately to a customer.

transaction price (for a contract with a customer) The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties.

Disclosure

The objective of the disclosure requirements is for an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. To achieve that objective, an entity shall disclose qualitative and quantitative information about all of the following:

• its contracts with customers (see paragraphs 113–122);
• the significant judgements, and changes in the judgements, made in applying this Standard to those contracts (see paragraphs 123–126); and
• any assets recognised from the costs to obtain or fulfil a contract with a customer in accordance with paragraph 91 or 95 (see paragraphs 127–128).

Objective

The objective of this Standard is to specify the financial reporting requirements for regulatory deferral account balances that arise when an entity provides goods or services to customers at a price or rate that is subject to rate regulation.

Scope

An entity is permitted to apply the requirements of this Standard in its first IFRS financial statements if and only if it:

• conducts rate-regulated activities; and
• recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

Recognition and measurement

An entity that has rate-regulated activities and that is within the scope of, and elects to apply, this Standard shall apply paragraphs 10 and 12 of IAS 8 when developing its accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral account balances

Defined terms

first IFRS financial statements The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRS), by an explicit and unreserved statement of compliance with IFRS.

first-time adopter An entity that presents its first IFRS financial statements.

previous GAAP The basis of accounting that a first-time adopter used immediately before adopting IFRS.

rate-regulated activities An entity’s activities that are subject to rate regulation.

rate regulation A framework for establishing the prices that can be charged to customers for goods or services and that framework is subject to oversight and/or approval by a rate regulator.

rate regulator An authorised body that is empowered by statute or regulation to establish the rate or a range of rates that bind an entity. The rate regulator may be a third-party body or a related party of the entity, including the entity’s own governing board, if that body is required by statute or regulation to set rates both in the interest of the customers and to ensure the overall financial viability of the entity.

regulatory deferral account balance The balance of any expense (or income) account that would not be recognised as an asset or a liability in accordance with other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in establishing the rate(s) that can be charged to customers.

Disclosure

An entity that elects to apply this Standard shall disclose information that enables users to assess:

• the nature of, and the risks associated with, the rate regulation that establishes the price(s) that the entity can charge customers for the goods or services it provides; and
• the effects of that rate regulation on its financial position, financial performance and cash flows.

Objective

This IFRS:

• defines fair value;
• sets out in a single IFRS a framework for measuring fair value; and
• requires disclosures about fair value measurements.

Scope

This IFRS applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements (and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except as specified in paragraphs 6 and 7.

Measurement

This IFRS defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

A fair value measurement is for a particular asset or liability. Therefore, when measuring fair value an entity shall take into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Such characteristics include, for example, the following:

• condition and location of the asset; and
• restrictions, if any, on the sale or use of the asset.

Defined terms

active market A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis

cost approach A valuation technique that reflects the amount that would be required currently to replace the service capacity of an asset (often referred to as current replacement cost).

entry price The price paid to acquire an asset or received to assume a liability in an exchange transaction

exit price The price that would be received to sell an asset or paid to transfer a liability.

expected cash flow The probability-weighted average (ie mean of the distribution) of possible future cash flows.

air value The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

highest and best use The use of a non-financial asset by market participants that would maximise the value of the asset or the group of assets and liabilities (eg a business) within which the asset would be used.

income approach Valuation techniques that convert future amounts (eg cash flows or income and expenses) to a single current (ie discounted) amount. The fair value measurement is determined on the basis of the value indicated by current market expectations about those future amounts.

inputs The assumptions that market participants would use when pricing the asset or liability, including assumptions about risk, such as the following:

• the risk inherent in a particular valuation technique used to measure fair value (such as a pricing model); and
• the risk inherent in the inputs to the valuation technique.

Inputs may be observable or unobservable.

Level 1 inputs Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date.

Level 2 inputs Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 inputs Unobservable inputs for the asset or liability.

market approach A valuation technique that uses prices and other relevant information generated by market transactions involving identical or comparable (ie similar) assets, liabilities or a group of assets and liabilities, such as a business.

market-corroborated inputs Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

market participant Buyers and sellers in the principal (or most advantageous) market for the asset or liability that have all of the following characteristics:

• They are independent of each other, ie they are not related parties as defined in IAS 24, although the price in a related party transaction may be used as an input to a fair value measurement if the entity has evidence that the transaction was entered into at market terms.
• They are knowledgeable, having a reasonable understanding about the asset or liability and the transaction using all available information, including information that might be obtained through due diligence efforts that are usual and customary.
• They are able to enter into a transaction for the asset or liability.
• They are willing to enter into a transaction for the asset or liability, ie they are motivated but not forced or otherwise compelled to do so.

most advantageous market The market that maximises the amount that would be received to sell the asset or minimises the amount that would be paid to transfer the liability, after taking into account transaction costs and transport costs.

non-performance risk The risk that an entity will not fulfil an obligation. Non-performance risk includes, but may not be limited to, the entity’s own credit risk.

observable inputs Inputs that are developed using market data, such as publicly available information about actual events or transactions, and that reflect the assumptions that market participants would use when pricing the asset or liability.

orderly transaction A transaction that assumes exposure to the market for a period before the measurement date to allow for marketing activities that are usual and customary for transactions involving such assets or liabilities; it is not a forced transaction (eg a forced liquidation or distress sale).

principal market The market with the greatest volume and level of activity for the asset or liability.

risk premium Compensation sought by risk-averse market participants for bearing the uncertainty inherent in the cash flows of an asset or a liability. Also referred to as a ‘risk adjustment’.

transaction costs The costs to sell an asset or transfer a liability in the principal (or most advantageous) market for the asset or liability that are directly attributable to the disposal of the asset or the transfer of the liability and meet both of the following criteria:

• They result directly from and are essential to that transaction.
• They would not have been incurred by the entity had the decision to sell the asset or transfer the liability not been made (similar to costs to sell, as defined in IFRS 5).

transport costs The costs that would be incurred to transport an asset from its current location to its principal (or most advantageous) market.

unit of account The level at which an asset or a liability is aggregated or disaggregated in an IFRS for recognition purposes.

unobservable inputs Inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability.

Disclosure

An entity shall disclose information that helps users of its financial statements assess both of the following:

• for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position after initial recognition, the valuation techniques and inputs used to develop those measurements.
• for recurring fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other comprehensive income for the period.

Objective

The objective of this IFRS is to require an entity to disclose information that enables users of its financial statements to evaluate:

• the nature of, and risks associated with, its interests in other entities; and
• the effects of those interests on its financial position, financial performance and cash flows.

Scope

This IFRS shall be applied by an entity that has an interest in any of the following:

• subsidiaries
• joint arrangements (ie joint operations or joint ventures)
• associates
• unconsolidated structured entities.

Defined terms

income from a structured entity For the purpose of this IFRS, income from a structured entity includes, but is not limited to, recurring and non-recurring fees, interest, dividends, gains or losses on the remeasurement or derecognition of interests in structured entities and gains or losses from the transfer of assets and liabilities to the structured entity.

interest in another entity For the purpose of this IFRS, an interest in another entity refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity can be evidenced by, but is not limited to, the holding of equity or debt instruments as well as other forms of involvement such as the provision of funding, liquidity support, credit enhancement and guarantees. It includes the means by which an entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer supplier relationship.

structured entity An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

Disclosure

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) was approved for issue by the fourteen members of the International Accounting Standards Board.

Objective

The objective of this IFRS is to establish principles for financial reporting by entities that have an interest in arrangements that are controlled jointly (ie joint arrangements).

Scope

This IFRS shall be applied by all entities that are a party to a joint arrangement

Defined terms

joint arrangement An arrangement of which two or more parties have joint control

joint control The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

joint operation A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

joint operator A party to a joint operation that has joint control of that joint operation.

joint venture A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement

joint venturer A party to a joint venture that has joint control of that joint venture.

party to a joint arrangement An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement.

separate vehicle A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality.

Disclosure

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) was approved for issue by the fourteen members of the International Accounting Standards Board.

Objective

The objective of this IFRS is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.

Scope

An entity that is a parent shall present consolidated financial statements. This IFRS applies to all entities, except as follows:

a parent need not present consolidated financial statements if it meets all the following conditions: 

• it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and all its other owners, including those not otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial statements;
• its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets);
• it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and
• its ultimate or any intermediate parent produces financial statements that are available for public use and comply with IFRSs, in which subsidiaries are consolidated or are measured at fair value through profit or loss in accordance with this IFRS.

Defined terms

consolidated financial statements The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity.

control of an investee An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

decision maker An entity with decision-making rights that is either a principal or an agent for other parties.

group A parent and its subsidiaries

investment entity An entity that:

• obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services;
• commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income, or both; and
• measures and evaluates the performance of substantially all of its investments on a fair value basis.

non-controlling interest Equity in a subsidiary not attributable, directly or indirectly, to a parent.

parent An entity that controls one or more entities.

power Existing rights that give the current ability to direct the relevant activities.

protective rights Rights designed to protect the interest of the party holding those rights without giving that party power over the entity to which those rights relate.

relevant activities For the purpose of this IFRS, relevant activities are activities of the investee that significantly affect the investee’s returns

removal rights Rights to deprive the decision maker of its decisionmaking authority

subsidiary An entity that is controlled by another entity.

Disclosure

Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) was approved for issue by the fourteen members of the International Accounting Standards Board.

Objective

The objective of this Standard is to establish principles for the financial reporting of financial assets and financial liabilities that will present relevant and useful information to users of financial statements for their assessment of the amounts, timing and uncertainty of an entity’s future cash flows.

Scope

This Standard shall be applied by all entities to all types of financial instruments except:

1. those interests in subsidiaries, associates and joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IFRS 10, IAS 27 or IAS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture in accordance with some or all of the requirements of this Standard. Entities shall also apply this Standard to derivatives on an interest in a subsidiary, associate or joint venture unless the derivative meets the definition of an equity instrument of the entity in IAS 32 Financial Instruments: Presentation.
2. rights and obligations under leases to which IFRS 16 Leases applies. However:

• finance lease receivables (ie net investments in finance leases) and operating lease receivables recognised by a lessor are subject to the derecognition and impairment requirements of this Standard;
• lease liabilities recognised by a lessee are subject to the derecognition requirements in paragraph 3.3.1 of this Standard; and
• derivatives that are embedded in leases are subject to the embedded derivatives requirements of this Standard.

3. employers’ rights and obligations under employee benefit plans, to which IAS 19 Employee Benefits applies.

4. financial instruments issued by the entity that meet the definition of an equity instrument in IAS 32 (including options and warrants) or that are required to be classified as an equity instrument in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of IAS 32. However, the holder of such equity instruments shall apply this Standard to those instruments, unless they meet the exception in (1).

5. rights and obligations arising under an insurance contract as defined in IFRS 17 Insurance Contracts, or an investment contract with discretionary participation features within the scope of IFRS 17. However, this Standard applies to:

• derivatives that are embedded in contracts within the scope of IFRS 17, if the derivatives are not themselves contracts within the scope of IFRS 17.
• investment components that are separated from contracts within the scope of IFRS 17, if IFRS 17 requires such separation, unless the separated investment component is an investment contract with discretionary participation features within the scope of IFRS 17.
• an issuer’s rights and obligations under insurance contracts that meet the definition of a financial guarantee contract. However, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting that is applicable to insurance contracts, the issuer may elect to apply either this Standard or IFRS 17 to such financial guarantee contracts (see paragraphs B2.5–B2.6). The issuer may make that election contract by contract, but the election for each contract is irrevocable.
• an entity’s rights and obligations that are financial instruments arising under credit card contracts, or similar contracts that provide credit or payment arrangements, that an entity issues that meet the definition of an insurance contract but which paragraph 7(h) of IFRS 17 excludes from the scope of IFRS 17. However, if, and only if, the insurance coverage is a contractual term of such a financial instrument, the entity shall separate that component and apply IFRS 17 to it (see paragraph 7(h) of IFRS 17).
• an entity’s rights and obligations that are financial instruments arising under insurance contracts that an entity issues that limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract, if the entity elects, in accordance with paragraph 8A of IFRS 17, to apply IFRS 9 instead of IFRS 17 to such contracts.

6. any forward contract between an acquirer and a selling shareholder to buy or sell an acquiree that will result in a business combination within the scope of IFRS 3 Business Combinations at a future acquisition date. The term of the forward contract should not exceed a reasonable period normally necessary to obtain any required approvals and to complete the transaction.

7. loan commitments other than those loan commitments described in paragraph 2.3. However, an issuer of loan commitments shall apply the impairment requirements of this Standard to loan commitments that are not otherwise within the scope of this Standard. Also, all loan commitments are subject to the derecognition requirements of this Standard.

8. financial instruments, contracts and obligations under share-based payment transactions to which IFRS 2 Share-based Payment applies, except for contracts within the scope of paragraphs 2.4–2.7 of this Standard to which this Standard applies.

9. rights to payments to reimburse the entity for expenditure that it is required to make to settle a liability that it recognises as a provision in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, or for which, in an earlier period, it recognised a provision in accordance with IAS 37.

10. rights and obligations within the scope of IFRS 15 Revenue from Contracts with Customers that are financial instruments, except for those that IFRS 15 specifies are accounted for in accordance with this Standard.

Recognition

An entity shall recognise a financial asset or a financial liability in its statement of financial position when, and only when, the entity becomes party to the contractual provisions of the instrument (see paragraphs B3.1.1 and B3.1.2). When an entity first recognises a financial asset, it shall classify it in accordance with paragraphs 4.1.1–4.1.5 and measure it in accordance with paragraphs 5.1.1–5.1.3. When an entity first recognises a financial liability, it shall classify it in accordance with paragraphs 4.2.1 and 4.2.2 and measure it in accordance with paragraph 5.1.1.

Measurement

Except for trade receivables within the scope of paragraph 5.1.3, at initial recognition, an entity shall measure a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

However, if the fair value of the financial asset or financial liability at initial recognition differs from the transaction price, an entity shall apply paragraph B5.1.2A.

After initial recognition, an entity shall measure a financial asset in accordance with paragraphs 4.1.1–4.1.5 at: (a) amortised cost; (b) fair value through other comprehensive income; or (c) fair value through profit or loss.

Defined terms

12-month expected credit losses The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

amortised cost of a financial asset or financial liability The amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.

contract assets Those rights that IFRS 15 Revenue from Contracts with Customers specifies are accounted for in accordance with this Standard for the purposes of recognising and measuring impairment gains or losses.

credit-impaired financial asset A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired include observable data about the following events:

• significant financial difficulty of the issuer or the borrower;
• a breach of contract, such as a default or past due event;
• the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider;
• it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
• the disappearance of an active market for that financial asset because of financial difficulties; or
• the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event— instead, the combined effect of several events may have caused financial assets to become credit-impaired

credit loss The difference between all contractual cash flows that are due to an entity in accordance with the contract and all the cash flows that the entity expects to receive (ie all cash shortfalls), discounted at the original effective interest rate (or creditadjusted effective interest rate for purchased or originated credit-impaired financial assets). An entity shall estimate cash flows by considering all contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) through the expected life of that financial instrument. The cash flows that are considered shall include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms. There is a presumption that the expected life of a financial instrument can be estimated reliably. However, in those rare cases when it is not possible to reliably estimate the expected life of a financial instrument, the entity shall use the remaining contractual term of the financial instrument

redit-adjusted effective interest rate The rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset to the amortised cost of a financial asset that is a purchased or originated credit-impaired financial asset. When calculating the credit-adjusted effective interest rate, an entity shall estimate the expected cash flows by considering all contractual terms of the financial asset (for example, prepayment, extension, call and similar options) and expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate (see paragraphs B5.4.1–B5.4.3), transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to reliably estimate the cash flows or the remaining life of a financial instrument (or group of financial instruments), the entity shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

derecognition The removal of a previously recognised financial asset or financial liability from an entity’s statement of financial position.

derivative A financial instrument or other contract within the scope of this Standard with all three of the following characteristics.

• its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’).
• it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
• t is settled at a future date.

dividends Distributions of profits to holders of equity instruments in proportion to their holdings of a particular class of capital.

effective interest method The method that is used in the calculation of the amortised cost of a financial asset or a financial liability and in the allocation and recognition of the interest revenue or interest expense in profit or loss over the relevant period

effective interest rate The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, an entity shall estimate the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but shall not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate (see paragraphs B5.4.1–B5.4.3), transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group of financial instruments), the entity shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments).

expected credit losses The weighted average of credit losses with the respective risks of a default occurring as the weights.

financial guarantee contract A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument

financial liability at fair value through profit or loss A financial liability that meets one of the following conditions:

• it meets the definition of held for trading.
• upon initial recognition it is designated by the entity as at fair value through profit or loss in accordance with paragraph 4.2.2 or 4.3.5.
• it is designated either upon initial recognition or subsequently as at fair value through profit or loss in accordance with paragraph 6.7.1

firm commitment A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.

forecast transaction An uncommitted but anticipated future transaction

gross carrying amount of a financial asset The amortised cost of a financial asset, before adjusting for any loss allowance.

hedge ratio The relationship between the quantity of the hedging instrument and the quantity of the hedged item in terms of their relative weighting.

held for trading A financial asset or financial liability that:

• is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;
• on initial recognition is part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking; or
• is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

impairment gain or loss Gains or losses that are recognised in profit or loss in accordance with paragraph 5.5.8 and that arise from applying the impairment requirements in Section 5.5

lifetime expected credit losses The expected credit losses that result from all possible default events over the expected life of a financial instrument.

loss allowance The allowance for expected credit losses on financial assets measured in accordance with paragraph 4.1.2, lease receivables and contract assets, the accumulated impairment amount for financial assets measured in accordance with paragraph 4.1.2A and the provision for expected credit losses on loan commitments and financial guarantee contracts.

modification gain or loss The amount arising from adjusting the gross carrying amount of a financial asset to reflect the renegotiated or modified contractual cash flows. The entity recalculates the gross carrying amount of a financial asset as the present value of the estimated future cash payments or receipts through the expected life of the renegotiated or modified financial asset that are discounted at the financial asset’s original effective interest rate (or the original credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) or, when applicable, the revised effective interest rate calculated in accordance with paragraph 6.5.10. When estimating the expected cash flows of a financial asset, an entity shall consider all contractual terms of the financial asset (for example, prepayment, call and similar options) but shall not consider the expected credit losses, unless the financial asset is a purchased or originated credit-impaired financial asset, in which case an entity shall also consider the initial expected credit losses that were considered when calculating the original credit-adjusted effective interest rate.

past due A financial asset is past due when a counterparty has failed to make a payment when that payment was contractually due.

purchased or originated credit-impaired financial asset Purchased or originated financial asset(s) that are credit-impaired on initial recognition

reclassification date The first day of the first reporting period following the change in business model that results in an entity reclassifying financial assets.

regular way purchase or sale A purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

transaction costs Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability (see paragraph B5.4.8). An incremental cost is one that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument

Scope

This IFRS shall apply to:

1. the separate or individual financial statements of an entity:

• whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
• that files, or is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; and

2. the consolidated financial statements of a group with a parent:

• whose debt or equity instruments are traded in a public market (a domestic or foreign stock exchange or an over-the-counter market, including local and regional markets), or
• that files, or is in the process of filing, the consolidated financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market.

Measurement

The amount of each segment item reported shall be the measure reported to the chief operating decision maker for the purposes of making decisions about allocating resources to the segment and assessing its performance. Adjustments and eliminations made in preparing an entity’s financial statements and allocations of revenues, expenses, and gains or losses shall be included in determining reported segment profit or loss only if they are included in the measure of the segment’s profit or loss that is used by the chief operating decision maker. Similarly, only those assets and liabilities that are included in the measures of the segment’s assets and segment’s liabilities that are used by the chief operating decision maker shall be reported for that segment. If amounts are allocated to reported segment profit or loss, assets or liabilities, those amounts shall be allocated on a reasonable basis.

Reconciliations

An entity shall provide reconciliations of all of the following:

• the total of the reportable segments’ revenues to the entity’s revenue.
• the total of the reportable segments’ measures of profit or loss to the entity’s profit or loss before tax expense (tax income) and discontinued operations. However, if an entity allocates to reportable segments items such as tax expense (tax income), the entity may reconcile the total of the segments’ measures of profit or loss to the entity’s profit or loss after those items.
• the total of the reportable segments’ assets to the entity’s assets if the segment assets are reported in accordance with paragraph 23.
• the total of the reportable segments’ liabilities to the entity’s liabilities if segment liabilities are reported in accordance with paragraph 23.
• the total of the reportable segments’ amounts for every other material item of information disclosed to the corresponding amount for the entity

Defined term

operating segment An operating segment is a component of an entity:

• that engages in business activities from which it may earn revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),
• whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and
• for which discrete financial information is available.

Disclosure

An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates.

Paragraphs 32–34 apply to all entities subject to this IFRS including those entities that have a single reportable segment. Some entities’ business activities are not organised on the basis of differences in related products and services or differences in geographical areas of operations. Such an entity’s reportable segments may report revenues from a broad range of essentially different products and services, or more than one of its reportable segments may provide essentially the same products and services. Similarly, an entity’s reportable segments may hold assets in different geographical areas and report revenues from customers in different geographical areas, or more than one of its reportable segments may operate in the same geographical area. Information required by paragraphs 32–34 shall be provided only if it is not provided as part of the reportable segment information required by this IFRS.

Objective

The objective of this IFRS is to require entities to provide disclosures in their financial statements that enable users to evaluate:

• the significance of financial instruments for the entity’s financial position and performance; and
• the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the end of the reporting period, and how the entity manages those risks.

Scope

This IFRS shall be applied by all entities to all types of financial instruments, except:

1. those interests in subsidiaries, associates or joint ventures that are accounted for in accordance with IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements or IAS 28 Investments in Associates and Joint Ventures. However, in some cases, IFRS 10, IAS 27 or IAS 28 require or permit an entity to account for an interest in a subsidiary, associate or joint venture using IFRS 9; in those cases, entities shall apply the requirements of this IFRS and, for those measured at fair value, the requirements of IFRS 13 Fair Value Measurement. Entities shall also apply this IFRS to all derivatives linked to interests in subsidiaries, associates or joint ventures unless the derivative meets the definition of an equity instrument in IAS 32.
2. employers’ rights and obligations arising from employee benefit plans, to which IAS 19 Employee Benefits applies.
3. [deleted]
4. insurance contracts as defined in IFRS 17 Insurance Contracts or investment contracts with discretionary participation features within the scope of IFRS 17. However, this IFRS applies to:

• derivatives that are embedded in contracts within the scope of IFRS 17, if IFRS 9 requires the entity to account for them separately.
• investment components that are separated from contracts within the scope of IFRS 17, if IFRS 17 requires such separation, unless the separated investment component is an investment contract with discretionary participation features.
• an issuer’s rights and obligations arising under insurance contracts that meet the definition of financial guarantee contracts, if the issuer applies IFRS 9 in recognising and measuring the contracts. However, the issuer shall apply IFRS 17 if the issuer elects, in accordance with paragraph 7(e) of IFRS 17, to apply IFRS 17 in recognising and measuring the contracts.
• an entity’s rights and obligations that are financial instruments arising under credit card contracts, or similar contracts that provide credit or payment arrangements, that an entity issues that meet the definition of an insurance contract if the entity applies IFRS 9 to those rights and obligations in accordance with paragraph 7(h) of IFRS 17 and paragraph 2.1(e)(iv) of IFRS 9.
• an entity’s rights and obligations that are financial instruments arising under insurance contracts that an entity issues that limit the compensation for insured events to the amount otherwise required to settle the policyholder’s obligation created by the contract, if the entity elects, in accordance with paragraph 8A of IFRS 17, to apply IFRS 9 instead of IFRS 17 to such contracts.

5. financial instruments, contracts and obligations under share-based payment transactions to which IFRS 2 Share-based Payment applies, except that this IFRS applies to contracts within the scope of IFRS 9.

6. instruments that are required to be classified as equity instruments in accordance with paragraphs 16A and 16B or paragraphs 16C and 16D of IAS 32.

Defined terms

credit risk The risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

credit risk rating grades Rating of credit risk based on the risk of a default occurring on the financial instrument.

currency risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

interest rate risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

liquidity risk The risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset.

loans payable Loans payable are financial liabilities, other than short-term trade payables on normal credit terms.

market risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency risk, interest rate risk and other price risk.

other price risk The risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer or by factors affecting all similar financial instruments traded in the market

Disclosure

When this IFRS requires disclosures by class of financial instrument, an entity shall group financial instruments into classes that are appropriate to the nature of the information disclosed and that take into account the characteristics of those financial instruments. An entity shall provide sufficient information to permit reconciliation to the line items presented in the statement of financial position.

In accordance with paragraph 117 of IAS 1 Presentation of Financial Statements (as revised in 2007), an entity discloses material accounting policy information. Information about the measurement basis (or bases) for financial instruments used in preparing the financial statements is expected to be material accounting policy information

An entity shall apply the disclosure requirements in paragraphs 21B–24F for those risk exposures that an entity hedges and for which it elects to apply hedge accounting. Hedge accounting disclosures shall provide information about:

• an entity’s risk management strategy and how it is applied to manage risk;
• how the entity’s hedging activities may affect the amount, timing and uncertainty of its future cash flows; and
• the effect that hedge accounting has had on the entity’s statement of financial position, statement of comprehensive income and statement of changes in equity.

For each type of risk arising from financial instruments, an entity shall disclose:

• the exposures to risk and how they arise;
• its objectives, policies and processes for managing the risk and the methods used to measure the risk; and
• any changes in (a) or (b) from the previous period.

For each type of risk arising from financial instruments, an entity shall disclose:

1. summary quantitative data about its exposure to that risk at the end of the reporting period. This disclosure shall be based on the information provided internally to key management personnel of the entity (as defined in IAS 24 Related Party Disclosures), for example the entity’s board of directors or chief executive officer.
2. the disclosures required by paragraphs 35A–42, to the extent not provided in accordance with (1).
3. concentrations of risk if not apparent from the disclosures made in accordance with (1) and (2).

Improving Disclosures about Financial Instruments (Amendments to IFRS 7) was approved for issue by the fourteen members of the International Accounting Standards Board.

Disclosures—Transfers of Financial Assets (Amendments to IFRS 7) was approved for issue by the fourteen members of the International Accounting Standards Board.

Mandatory Effective Date of IFRS 9 and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7) was approved for publication by fourteen of the fifteen members of the International Accounting Standards Board. Ms McConnell dissented from the issue of the amendments. Her dissenting opinion is set out after the Basis for Conclusions.

Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) was approved for issue by the fifteen members of the International Accounting Standards Board.