What is Financial Instruments (IFRS 9)?
IFRS 9 is the international standard that governs the recognition, classification, measurement, impairment, and derecognition of financial instruments. It replaced IAS 39 in 2018 and introduced a forward-looking expected credit loss (ECL) impairment model and simplified classification categories based on the business model and contractual cash flows.
How It Works
- Classify financial assets into three categories: amortised cost, fair value through OCI (FVOCI), or fair value through P&L (FVTPL).
- Apply the expected credit loss (ECL) model to all financial assets at amortised cost and debt instruments at FVOCI.
- Account for financial liabilities mostly at amortised cost, with limited cases at FVTPL.
- Apply hedge accounting where designated and documented under IFRS 9 rules.
Saudi Context
Saudi banks supervised by SAMA were early adopters of IFRS 9 and developed extensive ECL models for sharia-compliant financing portfolios. Saudi corporates apply IFRS 9 to trade receivables, investments, and borrowings. ZATCA generally accepts IFRS 9 treatment for zakat base calculations.
Example
A Saudi bank classifies a SAR 500 million corporate loan at amortised cost. Under the ECL model, the bank books a SAR 5 million 12-month expected credit loss provision at initial recognition.