29 May 2009

EFRAG recommends adoption of IFRIC 9 and IAS 39

The Amendment clarifies that an entity must assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category.

EFRAG has completed its due process regarding the Amendments to IFRIC 9 and IAS 39 'Embedded Derivatives' and has submitted its Endorsement Advice Letter and Effects Study Report to the European Commission. 

 

The Amendment concerns the treatment of derivative financial instruments embedded in other contracts.

 

The Amendment clarifies that an entity must assess whether an embedded derivative is required to be separated from a host contract when the entity reclassifies a hybrid (combined) financial asset out of the fair value through profit or loss category.

The Amendment further clarifies that that assessment should be made on the basis of the circumstances that existed when the entity first became a party to the contract. Finally, the Amendment clarifies that, if the entity concludes that the derivative requires fair value accounting but is unable to measure the fair value of the embedded derivative separately, the entity has to continue to account for the entire instrument at fair value through profit or loss.

 

The Amendment becomes effective for annual periods ending on or after 30 June 2009 and shall be applied retrospectively.

 

Endorsement Advice on the Amendment to IFRIC 9 and IAS 39

 

© EFRAG - European Financial Reporting Advisory Group