United States

Proposed narrow exception to IFRS 9


The International Accounting Standards Board recently issued an Exposure Draft, Prepayment Features with Negative Compensation - Proposed amendments to IFRS 9. The Exposure Draft proposes a narrow exception to International Financial Reporting Standard (IFRS) 9, Financial Instruments, for certain prepayable financial assets that, absent the prepayment feature, have contractual cash flows that are solely payments of principal and interest. Specifically, the Exposure Draft proposes that such a financial asset would be eligible to be measured at amortized cost or at fair value through other comprehensive income, subject to the assessment of the business model in which it is held, if the following two conditions are met:

  • The prepayment amount is inconsistent with paragraph B4.1.11(b) of IFRS 9 only because the party that chooses to terminate the contract early (or otherwise causes the early termination to occur) may receive reasonable additional compensation for doing so; and
  • When the entity initially recognizes the financial asset, the fair value of the prepayment feature is insignificant.

The proposed effective date of the exception would be the same as the effective date of IFRS 9 (annual periods beginning on or after January 1, 2018), with early application permitted. The Exposure Draft is available for comment until May 24, 2017.