Accounting for Financial Instruments
The new financial instruments framework requires all financial assets and financial liabilities to be classified by characteristic and/or management intent. Their classification must be documented:
- On the first effective date of the standard
- At inception date for every new financial instrument entered into thereafter
The classification of financial assets and liabilities determines how they are accounted for on an ongoing basis. The company may elect to account for most financial assets or financial liabilities at fair value; however, election is irrevocable once made.
All financial assets are classified in one of four categories:
|Held for trading||Includes:
|Held to maturity (HTM)||
|Loans and receivables||
|Available for sale||Includes:
|Other liabilities||A financial liability not classified as held for trading|
All financial instruments should be classified on date of adoption of Section 3855.
Certain existing financial instruments are remeasured on date of adoption with the offsetting adjustment to opening retained earnings (Held for trading) or other comprehensive income (Available for sale)
- How will your company review and classify its existing financial instruments?
- Are your systems able to manage financial instrument classification categories and related measurement differences? How will new financial instruments be classified?
- How will the classifications be documented? How will documentation be controlled?