A final version of IFRS 9 has been issued which replaces IAS 39 Financial Instruments: Recognition and Measurement. The completed standard comprises guidance on classification and measurement, impairment hedge accounting and derecognition. 1 January 2018

The statement introduces a new approach to the classification of financial assets, which is driven by the business model in which the asset is held and their cash flow characteristics. A new business model was introduced which does allow certain financial assets to be categorised as “fair value through other comprehensive income” in certain circumstances. The requirements for financial liabilities are mostly carried forward unchanged from IAS 39.

Changes have been made to the fair value option for financial liabilities to address the issue of own credit risk.

The new model introduces a single impairment model being applied to all financial instruments, as well as an “expected credit loss” model for the measurement of financial assets.

The statement contains a new model for hedge accounting that aligns the accounting treatment with the risk management activities of an entity, in addition enhanced disclosures will provide better information about risk management and the effect of hedge accounting on the financial statements.

It also carries forward the derecognition requirements of financial assets and liabilities from IAS 39.

Bidvest Bank has considered the impact of the changes in the standard and expects no material change to the financial assets and liabilities on the balance sheet. For its equity instruments the Bank will make an irrevocable election at inception for classification as Fair Value through Other Comprehensive Income (FVOCI), which is in line with the current IAS 39 treatment for these instruments. The IFRS 9 expected credit loss impairment model was applied to historic financial instrument balances, the increase in impairments on banking advances is expected to be between 7% – 12%.

The impact on the consolidated financial statements on the application of IFRS 9 will not be material to the Group.

The standard requires entities to recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This core principle is achieved through a five step methodology that is required to be applied to all contracts with customers.

The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements.

Due to the diverse nature of the Group’s revenue streams management has concluded a detailed project to assess the impact on the Group’s financial statements. The impact will not result in a material change to the Group’s revenue. As IFRS 15 requires significant disclosures compared to the current standard, management anticipates that there will be changes to the nature and extend of the Group’s disclosure regarding the Group’s revenue.

A new standard that introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a rightof- use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. A lessee measures right-of-use assets similarly to other non-financial assets and lease liabilities similarly to other financial liabilities. As a consequence, a lessee recognises depreciation of the right-of-use asset and interest on the lease liability, and also classifies cash repayments of the lease liability into a principal portion and an interest portion and presents them in the statement of cash flows applying IAS 7.

The standard contains expanded disclosure requirements for lessees. Lessees will need to apply judgement in deciding upon the information to disclose to meet the objective of providing a basis for users of financial statements to assess the effect that leases have on the financial position, financial performance and cash flows of the lessee.

IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

The statement also requires enhanced disclosures to be provided by lessors that will improve information disclosed about a lessor’s risk exposure, particularly to residual value risk.

The Group will embark on a project to consider the impact of the changes in the standard on the Group’s financial statements. Preliminary work done indicates that it will have a material impact on the financial information, and is expected to change the nature and extent of the Group’s disclosure.

IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that insurance contracts have on the entity’s financial position, financial performance and cash flows.

IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning on or after 1 January 2021.

The interpretation addresses foreign currency transactions or parts of transactions and the Interpretations committee came to the following conclusion:

• the date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.
• if there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.