Skip to content

ESMA publishes statement highlighting matters for consideration in implementing IFRS 9 Financial Instruments

The European Securities and Markets Authority (ESMA) has today published a Public Statement dealing with issues to be considered in implementing IFRS 9 Financial Instruments.

Outline of IFRS 9 Financial Instruments

IFRS 9 Financial Instruments was issued by the International Accounting Standards Board (IASB) in July 2014 and it replaces major parts of IAS 39 Financial Instruments: Recognition and Measurement.

The improvements introduced by IFRS 9 include a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a revised approach to hedge accounting.  The Standard will come into effect on 1 January 2018 (IASB effective date) with early application permitted; IFRS 9 is expected to be endorsed for use within the EU by the end of 2016.

Classification and Measurement

IFRS 9 introduces a logical approach for the classification of financial assets, which is driven by cash flow characteristics and the business model in which an asset is held.  This principle-based unitary approach replaces the existing rules-based requirements.  The new model also results in a single impairment model being applied to all financial instruments, thereby removing a source of complexity associated with previous accounting requirements.


The delayed recognition of credit losses on loans (and other financial instruments) using the ‘incurred loss’ model has been identified as a weakness in the existing financial reporting requirements. As part of IFRS 9, the IASB has introduced an ‘expected loss’ impairment model that will require more timely recognition of expected credit losses. Specifically, IFRS 9 requires entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses on a timelier basis.

Hedge accounting

IFRS 9 introduces a reformed model for hedge accounting, with enhanced disclosures about risk management activity.  The new model aligns the accounting treatment with risk management activities, enabling entities to better reflect these activities in their financial statements. 

Own credit

IFRS 9 also removes the volatility in profit or loss that was caused by changes in the credit risk of liabilities elected to be measured at fair value.  This change in financial reportting means that gains caused by the deterioration of an entity’s own credit risk on such liabilities are no longer recognised in profit or loss.

ESMA’s Public Statement

In light of the expected impact and importance of the implementation of IFRS 9, ESMA’s Public Statement highlights the need for consistent and high-quality implementation of IFRS 9 and the need for transparency on its impact to users of financial statements.

ESMA calls on issuers of securities admitted to trading on regulated markets and their auditors to take the ESMA’s Public Statement into consideration in their respective work during the implementation of IFRS 9, notably when disclosing and auditing its [expected] effects in financial statements. In this respect, ESMA expects that, where relevant, the quality of the implementation of IFRS 9 will be closely monitored by Audit Committees.

ESMA expects that its Public Statement will be taken into account and reflected in the 2016 and 2017 annual and 2017 interim financial statements, thereby enhancing the comparability of IFRS financial statements in the EU. ESMA, together with national competent authorities, including IAASA, will monitor the level of disclosure that issuers provide in their financial statements about the implementation of IFRS 9, changes in accounting policies resulting from this implementation and information relevant to assessing its possible impact on the issuers’ financial statements in the period of initial application.

ESMA’s Public Statement may be accessed here.