FRSC Adopts Additions to PFRS 9 for Financial Liability Accounting
The Financial Reporting Standards Council (FRSC) approved in its meeting in November 2010 the adoption of the requirements on the accounting for financial liabilities issued by the International Accounting Standards Board (IASB). In March 2010, the FRSC adopted the IFRS 9 requirements on the classification and measurement of financial assets in PFRS 9, Financial Instruments. The requirements on financial liability accounting will be added to PFRS 9.
The requirements on financial liability accounting complete the classification and measurement phase of the IASB’s project to replace IAS 39, Financial Instruments: Recognition and Measurement.
The new requirements address the problem of volatility in profit or loss (P&L) arising from an issuer choosing to measure its own debt at fair value. This is often referred to as the ‘own credit’ problem.
In response to feedback received during its consultation process, the IASB decided to maintain the existing amortized cost measurement for most liabilities, limiting change to that required to address the own credit problem. With the new requirements, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income (OCI) section of the income statement, rather than within P&L.
The second and third phases of IFRS 9 are concerned with accounting for the impairment of financial assets and hedge accounting. The IASB is aiming to complete those phases by 30 June 2011, by adding the impairment and hedge accounting requirements to IFRS 9 and, therefore, replacing IAS 39 in its entirety.
PFRS 9 applies to financial statements for annual periods beginning on or after January 1, 2013. In the Philippines, entities are permitted to apply the new requirements on liability accounting in earlier periods. However, if they do, they must also apply the requirements in PFRS 9 that relate to financial assets.
The FRSC has submitted the new PFRS 9 to the Board of Accountancy for approval.