IFRS 9 Reclassification
IFRS 9 does not allow reclassification of financial liabilities but allows reclassification of financial assets only it is evident from change in the investor's business model.
Accounting for reclassification
Any reclassification is effective prospectively. When an asset is reclassified from:
- Amortized cost to FVTPL, the fair value is measured on the reclassification date and any difference is carried to profit or loss.
- FVTPL to amortized cost, the fair value on reclassification date becomes the opening gross carrying amount. This results in adjustment to effective interest rate and expected credit losses.
- Amortized cost to FVOCI, the fair value is measured at the reclassification date and any adjustment is reflected in other comprehensive income. This does not result in a change in effective interest rate or expected credit losses.
- FVOCI to amortized cost, the fair value is measured on the reclassification date an any cumulative balance in OCI is adjusted against the fair value. This results in a gross carrying amount that would have resulted had the asset always been carried at amortized cost.
- FVTPL to FVOCI, the asset continues to be carried at fair value, but an adjustment is needed for effective interest rate and expected credit losses.
- FVOCI to FVTPL, the asset continues to be carried at fair value, however the cumulative balance in OCI is taken to profit or loss as a reclassification adjustment under IAS 1.
Treatment of reclassification gains and losses
Any changes in fair value of are recognized in profit or loss except where (a) it is part of a hedging relationship, (b) it is an investment in equity instrument for which the entity has elected to report gains or losses in OCI, (c) it is a financial liability at FVTPL whose changes in credit risk are required to be reported in OCI, or (d) it is a financial asset measured at FVOCI.
Any gains or losses arising from assets or liabilities carried at amortized cost are reported in profit or loss on derecognition or amortization or (only in case of assets, on impairment and reclassification adjustments).
Any change in value between trade date and settlement date shall not be recognized in case of assets at amortized cost. However, in case of assets at fair value, it shall be recognized either in OCI or profit or loss. For the purpose of impairment requirements, trade date is the relevant date.
In respect of equity investments not held for trading or held as contingent consideration, an entity may irrevocably elect to present the change in other comprehensive income.
In respect of a financial liability measured at FVTPL, an entity shall report changes in fair value attributable to credit risk in OCI (except where doing so would create or enlarge any accounting mismatch) and remaining difference in profit or loss.
Any gains or losses on assets carried at FVOCI other than impairment gains or losses and foreign exchange gain or losses, shall be recognized in other comprehensive income. Any interest earned shall be recognized in profit or loss.