IIF responds to IASB Exposure Draft on Classification & Measurement of FIs

On July 19, the IIF submitted industry perspectives in response to the International Accounting Standards Board (IASB) consultation on its “Exposure Draft on the Amendments to the Classification and Measurement of Financial Instruments – Proposed amendments to IFRS 9 and IFRS 7".

The IIF welcomes the IASB’s objective to respond to feedback on the Post-Implementation Review (PIR) of the classification and measurement requirements in IFRS 9 Financial Instruments by improving the understandability of some of these requirements and the usefulness of related information disclosed by an entity applying the requirements in IFRS 7 Financial Instruments: Disclosures. In particular, the IASB’s efforts to address features linked to Environmental, Social and Governance (ESG) concerns to meet Solely Payments of Principal and Interest (SPPI) requirements in IFRS 9 is an important aspect for institutions who urgently need guidance on the classification of financial assets and whether their contractual cash flows are consistent with a basic lending arrangement.

In the comment letter, the IIF raises specific concerns and makes a number of suggestions, including but not limited to:

• Despite the acknowledgeable IASB’s efforts in clarifying the recognition and derecognition principles of financial assets and financial liabilities, we express our concern that they might result in unintended consequences. We recommend that instead of explicitly having proposed paragraph B3.1.2A to specify that settlement date accounting should be applied when recognizing or derecognizing a financial asset or financial liability, the Board may consider cross-referencing the new electronic payment option in proposed paragraph B3.3.8 into the existing paragraph B3.3.1(a) of IFRS 9 that covers extinguishment. 
• We welcome and appreciate the IASB’s efforts to address ESG-linked features in the context of the SPPI requirements in IFRS 9 and support the IASB’s objective of taking a holistic and principles-based approach. We also welcome the clarification in BC47(a) that “the elements of interest specified in paragraph B4.1.7A of IFRS 9 do not constitute an exhaustive list of the elements that are consistent with a basic lending arrangement.” However, we consider this an important clarification that should instead be incorporated into the application guidance. 
• We express our concern that the scope of the proposed disclosures in the Exposure Draft is very broad and will not provide meaningful information to financial statement users. It remains uncertain what information need of users the disclosure is intended to address. We recommend that the IASB develop more targeted disclosure requirements to align with user feedback as noted in BC99 of the Exposure Draft