Amortised cost measurement project

It is aiming to clarify the scope of paragraphs B5.4.5 and B5.4.6 of IFRS 9, in response to feedback from stakeholders. Readers will remember that the application of paragraph B5.4.5 generally leads to a re-estimation of the EIR without changing the carrying amount of the instrument, whereas paragraph B5.4.6 leads to a change in this amount against the income statement and leaves the EIR unchanged (the ‘catch-up’ approach). 

The IASB has tentatively decided to amend paragraph B5.4.5 of IFRS 9 so that it relates to changes in the contractual interest rates that provide consideration for the time value of money or for the instrument’s credit risk. 

The IASB staff consider that this change would have the following benefits:  

• aligning the impact on profit or loss and the impact on cash flows resulting from changes in estimates linked to significant elements of a loan, i.e. interest rate risk and credit risk; 
• confirming that a change in an estimate resulting directly from a change in the borrower’s credit risk falls within the scope of paragraph B5.4.5, which is currently the main source of uncertainty and variation in practice;  
• removing the concept of market rates from the criteria set out in B5.4.5 – this was open to interpretation.