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The Interpretations Committee tentatively decided to develop a draft Interpretation

 08 November 2016


The Interpretations Committee received a request regarding the accounting for modifications or exchanges of financial liabilities that do not result in derecognition of the financial liability. More specifically, the request related to whether, applying IFRS 9, an entity recognises any adjustment to the amortised cost of the financial liability arising from such a modification or exchange in profit or loss at the date of the modification or exchange.

The Interpretations Committee concluded that the requirements in paragraph B5.4.6 of IFRS 9 apply to all revisions of estimated payments or receipts, including changes in cash flows arising from modifications or exchanges of financial liabilities that do not result in derecognition of the financial liability. The Interpretations Committee noted that this is consistent with the requirements in paragraph 5.4.3 of IFRS 9 relating to modifications of contractual cash flows of a financial asset that do not result in derecognition, and the definition of amortised cost in Appendix A of IFRS 9. In addition, in the case of a modification or exchange of a financial liability that does not result in derecognition, the financial liability continues to be accounted for as the same financial liability.

The Interpretations Committee concluded that, applying paragraph B5.4.6 of IFRS 9 to such modifications or exchanges of financial liabilities, an entity recalculates the amortised cost of the modified financial liability by discounting the modified contractual cash flows using the original effective interest rate. The entity recognises any adjustment to the amortised cost of the financial liability in profit or loss as income or expense at the date of the modification or exchange.

The Interpretations Committee observed that the feedback from outreach activities on practice applying IAS 39 Financial Instruments: Recognition and Measurement indicated it would be beneficial to clarify the accounting required by IFRS 9 for modifications or exchanges of financial liabilities that do not result in derecognition. Consequently, the Interpretations Committee tentatively decided to develop a draft Interpretation, which would explain the accounting for such modifications and exchanges.

Next steps

Subject to discussing with the Board, the staff will prepare the draft interpretation.