IFRS 9

IFRS 9

International Financial Reporting Standard 9, concerning financial instruments and providing guidelines on classification, measurement, impairment, and hedge accounting.

IAS 39

International Accounting Standard 39, related to financial instruments: Recognition and Measurement, which IFRS 9 was developed to replace.

Financial Instruments

Contracts that give rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

Hedge Accounting

An accounting method that aligns the timing of the recognition of gains and losses on hedging instruments with the recognition of gains and losses on the hedged item.

Expected Credit Losses

An estimate of credit losses that results from default events on a financial instrument expected over the life of the asset or contract.

Amortised Cost

The amount at which a financial asset or financial liability is measured at initial recognition, minus principal repayments plus or minus cumulative amortization of any difference between that initial amount and the maturity amount.

Embedded Derivative

A component of a hybrid contract that also includes a non-derivative host, making some cash flows vary similarly to a stand-alone derivative.

Derecognition

The removal of a previously recognized financial asset or liability from an entity’s statement of financial position.

Fair Value through Other Comprehensive Income

A measurement category for financial assets where changes in fair value are recognized in other comprehensive income.

Hedged Item

An asset, liability, or anticipated transaction that is being hedged against changes in fair value or cash flows.

Business Model Assessment

An evaluation that determines how financial assets are managed to generate cash flows, influencing their classification within IFRS 9.

Credit Risk

The risk that one party to a financial instrument will cause financial loss for the other party by failing to meet its obligations.

Risk Management Objective

The goal defined by an entity regarding how it manages risk exposure and implements strategies, including hedging.

Transition Date

The date at which an entity first applies a new standard or amendments to an existing standard.

Principal and Interest Payments

The cash flows related to the repayment of the principal amount and interest, which must meet specific conditions to qualify for amortised cost measurement.

Impairment

A reduction in the carrying amount of a financial asset when there is a significant increase in credit risk.

Recognition and Derecognition

Processes for recording a financial asset or liability in the financial statements or removing it from them when certain conditions are met.

Hedge Effectiveness

The extent to which a hedging instrument offsets changes in the fair value or cash flows of the hedged item.

Regulatory Reform

Changes imposed by regulatory entities to refine financial instruments market practices, often relating to interest rate benchmarks.

Tangible and Intangible Assets

Assets that can be physically touched or have a non-physical form but provide economic value to a business.

Cash Flow Hedge

A hedge of the exposure to variability in cash flows of a predicted transaction or a recognized asset or liability.

Net Investment Hedge

A hedge of the foreign currency exposure of a net investment in a foreign operation.

Classification of Financial Assets

The process of categorizing financial assets based on the entity's business model and cash flow characteristics.

Business Model

The strategy an entity employs to generate cash flows through its financial assets.

Cash Flow Characteristics

The attributes of cash flows from financial assets that determine their classification.

Contractual Cash Flows

Cash flows that arise from the terms of a financial instrument.

Financial Asset Measurement

The process to evaluate financial assets at initial recognition, dependent on classification.

Level of Measurement

Determining fair value based on market conditions and characteristics of the asset.

Hedged Risk

The specific risk being mitigated through the use of a hedging instrument.

Hedging Instruments

Financial derivatives that are used to offset risk associated with another financial asset or liability.

Fair Value Option

The choice to measure certain financial assets or liabilities at fair value, instead of amortized cost.

Measurement Gain or Loss

The increase or decrease in the value of a financial instrument at reporting dates.

Hedge Effectiveness Testing

The assessment of the degree to which a hedging relationship is effective.

Contingent Payment

A payment obligation that may depend on future events.

Macro Hedge

Hedging strategy that involves managing the overall risk of a portfolio, rather than a specific asset.

Micro Hedge

Hedging strategy focused on hedging specific individual asset exposures.

Derivative Financial Instruments

Contracts whose value is derived from the performance of underlying assets or indices.

Embedded Derivatives Risks

The financial risks associated with embedded derivatives in hybrid contracts.

Acquisition Costs

Costs incurred to acquire financial instruments recognized as part of the asset's carrying value.

Financial Liabilities

Obligations of an entity to transfer cash or other financial assets to another entity.

Initial Recognition

The point at which a financial asset or liability is recorded for the first time in financial statements.

Subsequent Measurement

The valuation of financial instruments after initial recognition, based on their classification.

Hedging Relationship

The link between the hedging instrument and the hedged item, aimed at risk mitigation.

Default Risk

The risk that a counterparty will not fulfill its payment obligations.

Recognition Thresholds

Criteria that must be met before financial transactions are recorded in the accounts.

Recognition Criteria

The principles that determine when and how transactions are recorded in the financial statements.

Sound Credit Risk Management

Strategies and practices an entity employs to manage its exposure to credit risk.

Cash Equivalents

High liquid investments that are easily convertible to cash.

Reclassifying Financial Assets

Changing the classification of financial assets based on changes in the business model.

Risk Mitigation Strategies

Tactics used to reduce financial loss from risks associated with assets.

Non-Financial Risk

Risks that do not directly involve financial transactions but can impact financial performance.

Credit-Enhancing Features

Provisions in financial instruments designed to improve credit quality.

Incurred Loss Model

A model that recognizes credit losses when incurred, prior to IFRS 9 changes.

Forward-Looking Information

Projected data and estimates that may affect financial reporting and asset valuation.

Regulatory Compliance

AdHERence to laws and standards set by regulatory authorities in financial reporting.

Transition Requirements

Guidelines for entities to follow when adopting new accounting standards.

Significant Increase in Credit Risk

A change in the risk profile of a financial instrument, requiring impairment assessment.

Lifetime Expected Credit Losses

Credit losses expected over the life of a financial asset.

12-Month Expected Credit Losses

Credit losses expected within 12 months after the reporting date.

Historical Loss Experience

Data from past credit losses used to inform current estimates.

Macroeconomic Factors

Wider economic conditions that can influence credit risk assessments.

Financial Statements

Formal records of the financial activities and position of a business, entity, or person.

Accounting Policies

Specific principles and practices that govern the preparation of financial statements.

Asset Impairment Testing

Evaluations to determine if an asset's carrying amount exceeds its recoverable amount.

Financial Reporting Framework

The structure of guidelines and principles used for preparing financial statements.

Valuation Techniques

Methods used to estimate the fair value of financial instruments.

Sensitivity Analysis

The process of evaluating how changes in input variables impact financial outcomes.

Disclosure Requirements

Mandatory information that must be included in financial statements and notes.

Risk Assessment Procedures

Processes to identify, evaluate, and prioritize risks.

Strategic Decision Making

Choosing a course of action that aligns with an entity's objectives.

Market Driven Changes

Adjustments in financial values based on market conditions and investor behavior.