PFRS 9
• Financial Instruments is the Philippine
counterpart of IFRS 9, issued by the International
Accounting Standards Board (IASB). It replaces
PAS 39 (Philippine Accounting Standard 39) and
introduces a simplified, principles-based
approach to accounting for financial instruments.
PFRS 9 COMPRISES THREE MAIN
COMPONENTS:
• Classification and Measurement of
Financial Assets and Liabilities
• Impairment – Expected Credit Loss
(ECL) Model
• Hedge Accounting
1. CLASSIFICATION AND MEASUREMENT
OF FINANCIAL ASSETS AND LIABILITIES
Financial Assets are classified based on:
• Business model for managing the asset
• Contractual cash flow characteristics
1. CLASSIFICATION AND MEASUREMENT
OF FINANCIAL ASSETS AND LIABILITIES
Three categories of financial assets:
• Amortized Cost – If held to collect contractual cash flows
that are solely principal and interest (SPPI)
• Fair Value Through Other Comprehensive Income (FVOCI) –
If held to collect cash flows and sell
• Fair Value Through Profit or Loss (FVTPL) – All others (e.g.,
held for trading)
1. CLASSIFICATION AND MEASUREMENT
OF FINANCIAL ASSETS AND LIABILITIES
Financial Liabilities are generally:
• Measured at Amortized Cost
• Or FVTPL if designated or held for trading
2. IMPAIRMENT – EXPECTED CREDIT
LOSS (ECL) MODEL
• Replaces the incurred loss model under PAS 39.
• Uses a forward-looking approach: Recognize credit losses before a default
occurs.
Three stages of impairment:
• Stage 1 – 12-month ECL for assets with no significant increase in credit risk
• Stage 2 – Lifetime ECL for assets with significant increase in credit risk
• Stage 3 – Credit-impaired assets, lifetime ECL, interest income on net basis
2. IMPAIRMENT – EXPECTED CREDIT
LOSS (ECL) MODEL
Simplified approach:
• Used for trade receivables, contract assets, lease
receivables
• Measure lifetime ECL directly (no stage tracking)
3. HEDGE ACCOUNTING
Aligns hedge accounting more closely with risk management
practices
Types of hedges:
• Fair value hedge
• Cash flow hedge
• Hedge of a net investment in a foreign operation
3. HEDGE ACCOUNTING
Key improvements:
• Broader range of hedged items and instruments
• Simplified effectiveness testing (no 80–125% threshold)
• Allows non-derivatives and options as hedging
instruments
ADDITIONAL KEY POINTS
Reclassification of financial assets is only permitted when
the business model changes:
Equity Instruments:
• Measured at FVTPL, unless irrevocably elected for FVOCI
(no recycling to profit or loss).
• Disclosures relating to financial instruments are covered
under PFRS 7.
THANK YOU!
PFRS 7 – FINANCIAL
INSTRUMENTS:
DISCLOSURES
• PFRS 7 (Philippine Financial Reporting Standard
7) sets out disclosure requirements for financial
instruments in the financial statements. It works
in conjunction with PFRS 9 (Financial
Instruments: Recognition and Measurement) and
PAS 32 (Presentation of Financial Instruments).
PURPOSE OF PFRS 7
To ensure that users of financial statements
can:
• Understand the significance of financial instruments
to an entity’s financial position and performance
• Evaluate the nature and extent of risks arising from
those financial instruments
PFRS 7 COVERS TWO MAIN AREAS:
[Link] About the Financial
Instruments
[Link] and Extent of Risks Arising
from Financial Instruments
1. INFORMATION ABOUT THE FINANCIAL
INSTRUMENTS
Entities must disclose:
• Carrying amounts of each category of financial
instruments (e.g., amortized cost, FVTPL, FVOCI)
• Accounting policies for financial instruments
• Fair value information (if not measured at fair
value)
2. NATURE AND EXTENT OF RISKS
ARISING FROM FINANCIAL INSTRUMENTS
This includes qualitative and quantitative disclosures
on risks such as:
1. Credit Risk
• Maximum exposure to credit risk
• Collateral and other credit enhancements
• Information about credit quality and defaults
2. NATURE AND EXTENT OF RISKS
ARISING FROM FINANCIAL INSTRUMENTS
This includes qualitative and quantitative
disclosures on risks such as:
2. Liquidity Risk
• Maturity analysis of financial liabilities
• How the risk is managed
2. NATURE AND EXTENT OF RISKS
ARISING FROM FINANCIAL INSTRUMENTS
This includes qualitative and quantitative
disclosures on risks such as:
3. Market Risk
Sensitivity analysis for market risk exposures:
• Interest rate risk
• Currency risk
• Other price risk
PFRS 7 APPLIES TO:
• All entities that hold financial
instruments, whether or not they are
recognized in the financial statements.
• Disclosures are made in both interim
and annual reports.
THANK YOU!