IFRS 9 Financial Instruments - early guide updates


IFRS 9 Financial Instruments: An Early Guide for Local Authority Practitioners was issued by CIPFA in December 2017. This guidance was issued early to assist practitioners with their preparation of the adoption of IFRS 9 Financial Instruments on 1 April 2018.

The publication was based on the agreed provisions for the adoption of IFRS 9 issued alongside the 2017/18 Code of Practice on Local Authority Accounting in the United Kingdom (the Code). The 2018/19 Code’s provisions did not change in substance, with the exception of a new interpretation issued by CIPFA/LASAAC. This interpretation relates to the impairment of financial assets where the counterparty is central government or a local authority and statute prevents default, although this interpretation represents what was very likely to be the practical outcome for such financial assets. 

There were, however, some edits to the structure of the Code’s provisions and therefore the cross references to the Code in the early guide needed to be updated. 

In addition the Welsh Government issued the Local Authorities (Capital Finance and Accounting) (Wales) (Amendment) Regulations 2018 which removed the acquisition of loan capital from the definition of capital expenditure. 

CIPFA has issued an update sheet to bring the early guide in line with the changes, which includes a small number of other augmentations to the guidance. Publication subscribers and organisations who have purchased the title IFRS 9 Financial Instruments: an early guide for Local Authority Practitioners can find the update sheet in the ‘Download PDF and Resources’ folder, found in 'Contents' in the digital version. NB you will need to be logged in to access the title. Open the title, click on 'Contents' and click on 'Download PDF and Resources'.

When issuing amendments to IFRS 9 in IFRS 9 Financial Instruments: Prepayment Features with Negative Compensation (IASB October 2017), the IASB included clarification in its Basis of Conclusions about the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in the derecognition of the financial liability. 

The Basis of Conclusions in the amendments clarifies that the requirements in IFRS 9 for adjusting the amortised cost of such liabilities are consistent with those applied to the modification of a financial asset that does not result in derecognition. Therefore changes set out that the gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows each discounted at the original effective interest rate. Note that the IASB in its Basis of Conclusions has set out that no changes to standards are required to reflect this accounting treatment. 

Whether this has substantial implications for local authorities has at the time of drafting been included as a question in the current consultation on the 2019/20 Code.  

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