International Financial Reporting Standard:  IFRS 9 “Financial Instruments”
International Financial Reporting Standard: IFRS 9 “Financial Instruments”

The International Accounting Standards Board (IASB) issued the final version of IFRS 9 Financial Instruments (IFRS 9), which became mandatory in January 2018. Still, in 2022, some companies have not implemented and continue to use the methodology established in IAS 39 “Financial Instruments: Recognition and Measurement (IAS 39)”.

It is important to analyze the final version of IFRS 9 Financial Instruments (IFRS 9) since the new impairment model under the expected credit losses scheme is within the topics it includes.

It establishes the standards for the valuation, presentation, and disclosure of impairment losses of all Financial Instruments Receivable (IFC, as per their acronym in Spanish) in an entity’s financial statements, that is, when and how an expected impairment loss should be recognized, through methodologies that make it possible to improve the financial information and its comparability.

IFRS 9 considers a change in focus, where the expected losses are recognized over the life of the financial asset, measured at amortized cost, and not until a loss event has been incurred.


Expected Credit Losses (ECL) on IFCs must be estimated from the beginning and during the life of the IFC, the risk of which may vary in said period; however, the risk must be recognized before the IFC is due or other situations attributable to the debtor arise, such as a renegotiation or modification to the IFC. When conditions change favorably (duly demonstrable), these effects are recognized in the period in which they occur.

Characteristics of the new approach

  • Reduces the complexity of multiple deterioration measurements to a single model
  • Seeks to avoid late recognition of credit losses
  • Improves comparability
  • The ECL recognition must be carried out from the moment it is generated and throughout the IFC’s life since there is already a risk of bad debts

Expected credit losses: The estimated average of credit losses considering the corresponding default risks that might occur.

Individual and collective evaluation

The evaluations can be either individual or collective. Individual for those IFCs that have particular characteristics and collective for the IFCs whose evaluation would be impractical, grouping them by homogeneous or common elements, determining the Default Probability (DP) factor, the loss severity (LS) and with both, determining the amount to be recognized as an estimated ECL for the IFC or the IFC group.

To recognize the ECLs due to increases in credit risk, it might be necessary to assess them collectively to ensure that the entity meets the objective of recognizing ELCs throughout the life of the IFC when credit risk in a group increases significantly.


ASC 326 Credit Losses has staggered effective dates. The FASB deferred the effective date for all entities except SEC Companies that are not Smaller Reporting Companies. It is effective for annual periods beginning after December 15, 2019, and will be effective for all other entities for annual periods beginning after December 15, 2022.

Benefits of having the analysis

It is important that companies carry out the impairment analysis on financial instruments receivable. In addition to complying with the accounting framework, it reflects a more accurate economic reality of the Entity, which represents an important benefit for decision-makers and other financial information users.

Impact of not having the analysis

IFRS 9 arose when the need for investors to have greater transparency and reliability regarding the accounting of financial instruments became apparent. If it is not recognized, the company’s economic reality will not be reflected in its financial statements aligned with the accounting standards.

Solution we offer

Companies need to assess their business models for the holding of financial assets, so at JA del Rio, we can advise you on developing an accounting policy and implementing this standard in the accounting of the financial statements.