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Technical Resources
This webpage contains pronouncements, guides and articles that are relevant to HKFRS 9 Financial Instruments.
Effective Date
Annual reporting periods beginning on or after 1 January 2018.
Affected standards
HKFRS 9 supersedes HKAS 39 Financial Instruments: Recognition and Measurement, except for its hedge accounting requirements. Currently, HKFRS 9 permits an entity to choose its accounting policy either to apply the hedge accounting requirements of HKFRS 9 or to continue applying the hedge accounting requirements of HKAS 39. Therefore, although HKFRS 9 is effective, HKAS 39, which now contains only its requirements for hedge accounting, also remains effective.
Why do we need a new standard
HKFRS/IFRS 9 was developed to make financial reporting for financial instruments more relevant and understandable. The reforms introduced by HKFRS 9 were consistent with requests from the G20, the Financial Stability Board and Others.
HKFRS 9 brings together the classification and measurement, impairment and hedge accounting phases of the IASB’s project on financial instruments.
It is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. Built upon this is a forward-looking expected credit loss model that results in more timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting.
In addition, HKFRS 9 addresses the so-called ‘own credit’ issue, where banks and other entities recognise gains in profit or loss when the value of their own debt decreases due to a decline in their creditworthiness, provided that they have elected to measure that debt at fair value.
HKFRS 9 also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment.
Following its issuance, HKFRS 9 has been amended by:
- Prepayment Features with Negative Compensation
- Interest Rate Benchmark Reform
- Interest Rate Benchmark Reform – Phase 2
- Amendments to the Classification and Measurement of Financial Instruments
- Contracts Referencing Nature-dependent Electricity
Other HKFRS Accounting Standards have also made consequential amendments to HKFRS 9. An overview of the major developments is provided below:
Major developments
(a) Classification and measurement requirements
The International Accounting Standards Board (IASB) issued the completed version of IFRS 9 in 2014 and the Standard has been effective since 2018. To help the IASB assess the effects of a new Standard after it has been effective for some time, the IASB started carrying out the Post-implementation Review (PIR) of IFRS 9 in 2021 and issued the first Request for Information (RFI) on the classification and measurement requirements in September 2021. The RFI sought feedback on applying the classification and measurement requirements of IFRS 9 and related disclosures. The Hong Kong Institute of Certified Public Accountants (the Institute) conducted various forms of outreach activities to solicit feedback from local stakeholders. In January 2022, the Institute submitted its comment letter to the IASB.
The IASB completed this PIR and published the project report and feedback statement in December 2022. Feedback from stakeholders and research undertaken show that the requirements set out in IFRS 9 are working as intended and provide useful information to the users of financial statements. In response to feedback received, the IASB initiated a standard-setting project to make narrow-scope amendments to IFRS 9 and an Exposure Draft Amendments to the Classification and Measurement of Financial Instruments was published in March 2023. The Institute submitted its comment letter to the IASB in July 2023. Additionally, the IASB decided to add a project on Amortised Cost Measurement to its research pipeline.
After several rounds of deliberation, the IASB published the final amendments to IFRS 9 and IFRS 7 in May 2024. The key areas of the amendments include:
- clarifying the classification of financial assets with environmental, social and corporate governance (ESG) and other similar features;
- clarifying the date on which a financial asset or financial liability is derecognised;
- introducing an accounting policy option to derecognise financial liabilities that are settled through an electronic payment system before the settlement date if specified criteria are met;
- clarifying the requirements for classifying financial assets with non-recourse features and contractually linked instruments; and
- additional disclosure requirements regarding investments in equity instruments designated at fair value through other comprehensive income and financial instruments with contingent features, for example, features tied to ESG-linked targets.
In August 2024, the Institute issued the equivalent amendments to HKFRS 9 and HKFRS 7 after undergoing its standard-setting due process to achieve full convergence of HKFRS Accounting Standards with IFRS Accounting Standards. The amendments will become effective for annual reporting periods beginning on or after 1 January 2026. Earlier application of either all the amendments at the same time or only those related to the classification of financial assets is permitted.
(b) Impairment requirements
In May 2023, the IASB issued the second RFI focusing on specific areas of the impairment requirements of IFRS 9 and related disclosures. The Institute conducted various forms of outreach activities to solicit feedback from local stakeholders. In September 2023, the Institute submitted its comment letter to the IASB.
The IASB completed this PIR and published the project summary and feedback statement in July 2024. After analysing the evidence gathered, the IASB concluded that the impairment requirements are working as intended.
In response to stakeholder feedback, the IASB decided to:
- classify as medium priority the matters raised by stakeholders about credit risk disclosures and add a project to its research pipeline to make targeted improvements to disclosure requirements in IFRS 7 Financial Instruments: Disclosures about credit risk;
- classify as low priority the matters relating to accounting for financial guarantee contracts and consider these matters during the next agenda consultation;
- take no additional action on matters relating to the interaction between the impairment requirements and the IFRS 9 requirements for modification, derecognition and write-off of financial assets, as these matters will be considered as part of its research pipeline project on Amortised Cost Measurement; and
- take no further action on other matters identified in this PIR.
(c) Contracts Referencing Nature-dependent Electricity
In May 2024, the IASB issued an Exposure Draft Contracts for Renewable Electricity – Proposed amendments to IFRS 9 and IFRS 7. The purpose of the exposure draft was to address the challenges in applying the current accounting requirements for renewable electricity contracts and to ensure that financial statements more faithfully reflect the effects these contracts have on an entity through narrow-scope amendments. These contracts are often structured as power purchase agreements. The Institute submitted its comment letter in August 2024.
After considering stakeholder feedback, the IASB issued the final amendments to IFRS 9 and IFRS 7 in December 2024. In the final amendments, the IASB replaced the term ‘contracts for renewable electricity’ with ‘contracts referencing nature-dependent electricity’ to better reflect the specified characteristics of the electricity contracts within the scope of the amendments. The amendments include:
- clarifying the application of the ‘own-use requirements’;
- permitting hedge accounting if these contracts are used as hedging instruments; and
- adding new disclosure requirements to enable investors to understand the effect of these contracts on an entity’s financial performance and cash flows.
The Institute issued the equivalent amendments to HKFRS 9 and HKFRS 7 in February 2025. An entity shall apply the amendments related to the application of the ‘own-use’ requirements retrospectively. Restatement of comparative information is not required, and it is only permitted to do so without the use of hindsight. An entity shall apply the amendments related to hedge accounting prospectively to new hedging relationships designated on or after the date of initial application.
Upcoming activities
(a) Dynamic Risk Management (DRM)
The IASB added the DRM project to its standard-setting programme in May 2022. The DRM method aims to better reflect the effects of dynamic interest rate risk management activities in an entity’s financial statements. It also seeks to address challenges of current accounting models regarding transparency, eligible items, dynamic nature and performance management.
The IASB is now progressing towards the publication of an exposure draft, which is expected in Q4 2025.
(b) PIR of IFRS 9 – hedge accounting
This PIR is currently in the IASB’s PIR pipeline. The IASB has noted interactions between this project and the DRM project, as the proposed DRM disclosure requirements are based on the hedge accounting disclosures in IFRS 7. It may be beneficial to align the PIR of the hedge accounting requirements in IFRS 9 with the consultation on the DRM exposure draft. The IASB will discuss the start date of this PIR at a future meeting.
(c) Amortised Cost Measurement
At its June 2025 meeting, the IASB decided to move the project from the research programme to the standard-setting work plan and expected to issue an exposure draft in 2026.
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