Financial Instruments

(IFRS 9)

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Document Approval
Name Designation Date Signature

Approved by

Prepared by

Reviewed by

Date:

Document Version Control

Version Number Issue Date Reviewed by

01

Distribution List

Name Designation Departments

1. SAFCO International General
Trading LLC
2. Silal Food & Technology LLC

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 Table of Contents

I. Introduction........................................................................................4
II. Objectives...........................................................................................4
III. Scope..................................................................................................4
IV. Key Definitions..................................................................................4
V. Classification of Fixed Assets:........................................................5
VI. Classification of Financial Liabilities:............................................6
[Link] Measurement Under IFRS 9:.....................................7
IX. Impairment (Expected Credit Loss Model)..................................7
X. Hedge Accounting (Alignment with Risk Management).............8
XI. Transition (Adoption of IFRS 9).....................................................8

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 I. Introduction
This policy outlines the classification and measurement principles for
financial instruments in accordance with IFRS 9 Financial Instruments. It
ensures accurate recognition, categorization, and measurement of
financial assets and liabilities to reflect the entity’s financial position and
performance faithfully.

II. Objectives
 The primary objective of IFRS 9 is to establish principles for the financial
reporting of financial instruments that provide users of financial
statements with relevant and useful information.

 It aims to enable users to assess the amount, timing, and uncertainty of

an entity’s future cash flows arising from financial assets and liabilities.

 IFRS 9 seeks to improve the transparency and comparability of financial

reporting involving financial instruments through more consistent
recognition, measurement, presentation, and disclosure requirements.

 The standard introduces a forward-looking impairment model (expected

credit losses) to timely reflect credit losses and reduce procyclicality.

 It also seeks to align accounting for financial instruments with an entity's

business model and the contractual cash flow characteristics of the
instruments.

III. Scope
 IFRS 9 applies to all types of financial instruments except those
specifically excluded by other IFRS standards, including:

 Interests in subsidiaries, associates, and joint ventures accounted for

under IFRS 10, IAS 27, or IAS 28.

 Rights and obligations under leases within IFRS 16 (with some exceptions
for lessors).

 Employers' rights and obligations under employee benefit plans (IAS 19).

 Financial instruments issued by the entity that are classified as equity in

IAS 32.

 Insurance contracts accounted for under IFRS 4 or IFRS 17.

 Other exclusions include certain contract and non-financial instruments as

specified in IFRS standards.

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IV. Key Definitions
 Financial Instrument: A contract that gives rise to a financial asset for one
entity and a financial liability or equity instrument for another.

 Financial Asset: Cash, contractual rights to receive cash or another

financial asset, or exchange financial instruments under favorable
conditions.

 Financial Liability: A contractual obligation to deliver cash or another

financial asset, or exchange financial instruments under unfavorable
conditions.

 Equity Instrument: A contract evidencing a residual interest in the assets

of the entity after deducting liabilities.

 Business Model: The entity’s strategy for managing financial assets, which
determines whether assets are held to collect contractual cash flows or to
sell.

 SPPI Test (Solely Payments of Principal and Interest): A test evaluating if

contractual cash flows consist only of principal and interest payments on
principal outstanding.

 Amortised Cost: Initial recognition amount adjusted for principal

repayments, amortisation of discounts or premiums, and impairment
losses.

 Fair Value Through Other Comprehensive Income (FVOCI) : Measurement

category recognizing fair value changes in OCI, with specific recycling
rules on derecognition for debt instruments.

 Fair Value Through Profit or Loss (FVTPL) : Residual measurement category

recognizing fair value changes in profit or loss.

V. Classification of Financial Assets:

Amortised Cost

Financial assets qualify if they are held in a ‘hold-to-collect’ business

model and pass the SPPI test (Solely Payments of Principal and Interest).
Measured at amortised cost using the effective interest method. Typical
examples: trade receivables, loans with basic terms. Interest and
impairment go to profit or loss.

FVOCI – Debt Instruments

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 Applies when assets are held both to collect contractual cash flows and for
sale, with SPPI-compliant terms. Measured at fair value; unrealised
gains/losses in OCI; interest income and expected credit losses recognised
in profit or loss. On disposal, cumulative OCI gains/losses are recycled to
profit or loss.

FVOCI – Equity Instruments

All equity investments are at fair value. On initial recognition, non-trading

equities can be irrevocably designated FVOCI. Changes in fair value go to
OCI and aren’t recycled to profit

or loss on disposal; only dividends representing return on investment are

recognised in profit or loss.

FVTPL

Default category for financial assets failing amortised cost or FVOCI

criteria. This includes held-for-trading instruments, derivatives not
qualifying for hedge accounting, and instruments that fail SPPI. Measured
at fair value with all changes recognised in profit or loss, capturing both
realised and unrealised gains and losses immediately.

VI. Classification of Financial Liabilities:

Amortised Cost

Most financial liabilities, such as trade payables, loan payables, and

borrowings with standard interest terms, are measured at amortised cost.
Initially, they are recorded at fair value minus transaction costs, and
subsequently measured using the effective interest method. Interest
expense and repayments adjust the carrying value over time. This method
provides a smooth allocation of interest costs over the liability’s life.

Fair Value Through Profit or Loss (FVTPL)

Liabilities fall into this category if they are held for trading (e.g.,
derivatives not in hedging relationships) or if the entity designates them
at FVTPL to eliminate or significantly reduce measurement mismatches
between assets and liabilities.
A key IFRS 9 change is that for liabilities designated at FVTPL, changes in
fair value attributable to the entity’s own credit risk are recognised in
Other Comprehensive Income (OCI), not profit or loss. This avoids the
counterintuitive effect where a deterioration in an entity’s credit standing

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 could result in accounting gains. The remaining change in fair value
(excluding own credit risk) is recognised in profit or loss.

VII. Measurement on Initial Recognition under IFRS 9:

1. General Rule – Fair Value

All financial assets and financial liabilities are initially measured at fair
value on the trade date. This represents the price that would be paid to
transfer a liability or received to sell an asset in an orderly transaction at
the measurement date.

2. Transaction Costs Treatment

 Included in initial measurement for instruments not at FVTPL (e.g.,

amortised cost, FVOCI).

 Excluded for instruments measured at FVTPL — transaction costs are

expensed immediately to profit or loss.

3. Trade Receivables Exception

Trade receivables that do not have a significant financing component (as

per IFRS 15) are recognised at transaction price rather than fair value,
simplifying measurement for short-term receivables.

4. Basis for Fair Value Determination

Fair value is generally the transaction price unless evidenced otherwise by

observable market data or a reliable valuation technique, ensuring
consistency with IFRS 13 measurement principles.

VIII. Subsequent Measurement Under IFRS 9:

1. Amortised Cost

Financial assets or liabilities measured at amortised cost are subsequently

accounted for using the effective interest rate (EIR) method. This allocates
interest income or expense over the instrument’s life, adjusts for
premium/discount amortisation, and recognises impairment losses (ECL)
in profit or loss.

2. Fair Value Through Other Comprehensive Income (FVOCI)

These instruments are remeasured at fair value at each reporting

date. Unrealised gains/losses are recognised in OCI, while interest
income, foreign exchange differences, and impairment

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 losses/reversals affect profit or loss. On disposal (for debt instruments),
cumulative OCI amounts are recycled to P&L.

3. Fair Value Through Profit or Loss (FVTPL)

All changes in fair value — realised and unrealised — are

recognised immediately in profit or loss. This category provides the most
up-to-date market value in the financial statements and includes trading
instruments, derivatives, and instruments failing the amortised cost/FVOCI
criteria.

IX. Impairment (Expected Credit Loss Model)

IFRS 9 introduces a forward-looking expected credit loss (ECL) model to
replace the incurred loss model in IAS 39. The model applies to financial
assets measured at amortised cost, debt instruments at fair value through
OCI, and certain credit-related commitments like loan commitments and
financial guarantee contracts. It recognizes credit losses based on current
conditions and forecasts, rather than waiting for a loss event to occur.

 12-month ECL: Recognized when there has been no significant increase in

credit risk since initial recognition. Entities estimate expected losses from
defaults that could occur within the next 12 months.

 Lifetime ECL: Recognized when there is a significant increase in credit risk.

This reflects losses expected from possible defaults over the entire
expected life of the asset.

 The model incorporates multiple information sources, including historical

data, current conditions, and forward-looking macroeconomic factors.

 Examples include trade receivables, loans, corporate bonds, and lease

receivables. The model requires entities to assess credit risk changes
continuously.

This change promotes earlier recognition of credit losses, enhancing the

relevance and timeliness of impairment accounting.

X. Hedge Accounting (Alignment with Risk

Management)
IFRS 9 significantly reforms hedge accounting to better reflect an entity’s
risk management activities with the following features:

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  Broadened eligibility: More types of hedging instruments and hedged
items qualify, including components of non-financial items and
aggregated exposures of financial and non-financial items.

 Simplified effectiveness testing: The rigid 80–125% retrospective

effectiveness threshold from IAS 39 is replaced by a principle-based
approach focusing on whether an economic relationship exists, credit risk
does not dominate, and the hedge ratio aligns with risk management.

 Allows the designation of risk components (including non-contractual risk

components) as hedged items.

 Accounting for time value of options, forward points on forward contracts,

and foreign exchange basis spreads has been improved to reduce
volatility by allowing certain fair value changes to be recognized in other
comprehensive income (OCI) rather than profit or loss.

 Provides flexibility in designation and documentation, enabling better

alignment with treasury and risk management practices.

This results in more useful presentation of hedge results, greater ability

to apply hedge accounting, and reduced income statement volatility.

XI. Transition (Adoption of IFRS 9)

The adoption of IFRS 9 is retrospective with certain practical
expedients to ease the transition:

 Entities assess and classify financial assets and liabilities at the date of
initial application (DIA) based on facts and conditions at that date.

 There are practical expedients for not restating comparative periods, i.e.,
recognizing the cumulative effect in opening equity instead.

 Flexibility is provided for:

 Not reassessing whether contracts contain embedded derivatives or

require reclassification at DIA.

 Hedge accounting transition allows rolling over hedge documentation,

designations, and effectiveness assessments with certain exceptions.

 Classification and measurement relief includes elective re-designation of

financial instruments at DIA.

 For impairment, measurable allowances for expected credit losses are

adjusted as of DIA, with simplified approaches allowed to reduce
operational burden.

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 The transition framework aims at balancing comparability with operational
feasibility, minimizing disruption in systems and processes.

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