About

IAS 39 was superseded by IFRS 9 subject to:

  • the accounting policy choice about whether or not to continue applying the hedge accounting requirements in IAS 39 in accordance with paragraph 7.2.21 or paragraph 6.1.3 of IFRS 9; and
  • the temporary exemption in paragraph 20A of IFRS 4 that provides a temporary exemption to some insurers from applying IFRS 9 until they apply IFRS 17.

IAS 39 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. It also prescribes principles for derecognising financial instruments and for hedge accounting. The presentation and the disclosure of financial instruments are the subjects of IAS 32 and IFRS 7 respectively.

Recognition and derecognition

A financial instrument is recognised in the financial statements when the entity becomes a party to the financial instrument contract. An entity removes a financial liability from its statement of financial position when its obligation is extinguished. An entity removes a financial asset from its statement of financial position when its contractual rights to the asset’s cash flows expire; when it has transferred the asset and substantially all the risks and rewards of ownership; or when it has transferred the asset, and has retained some substantial risks and rewards of ownership, but the other party may sell the asset. The risks and rewards retained are recognised as an asset.

Measurement

A financial asset or financial liability is measured initially at fair value. Subsequent measurement depends on the category of financial instrument. Some categories are measured at amortised cost, and some at fair value. In limited circumstances other measurement bases apply, for example, certain financial guarantee contracts.

The following are measured at amortised cost:

  • held to maturity investments—non-derivative financial assets that the entity has the positive intention and ability to hold to maturity;
  • loans and receivables—non-derivative financial assets with fixed or determinable payments that are not quoted in an active market; and
  • financial liabilities that are not carried at fair value through profit or loss or otherwise required to be measured in accordance with another measurement basis.

The following are measured at fair value:

  • financial assets and financial liabilities held for trading—this category includes derivatives not designated as hedging instruments and financial assets and financial liabilities that the entity has designated for measurement at fair value. All changes in fair value are reported in profit or loss.
  • available for sale financial assets—all financial assets that do not fall within one of the other categories. These are measured at fair value. Unrealised changes in fair value are reported in other comprehensive income. Realised changes in fair value (from sale or impairment) are reported in profit or loss at the time of realisation.

IAS 39 sets out the conditions where special hedge accounting is permitted, and the procedures for doing hedge accounting.

What you should know

  • Know when IAS 39 remains relevant and understand its interaction with IFRS 9.
  • Recognise and derecognise financial assets and financial liabilities.
  • Classify financial instruments using the IAS 39 categories.
  • Measure financial assets and financial liabilities under IAS 39.
  • Account for derivatives and embedded derivatives.
  • Apply the hedge accounting requirements of IAS 39, where applicable.
  • Present and disclose financial instruments in accordance with the relevant IFRS requirements.