when you talk about FV change --- in scenario 1 amortized cost why do we consider the FV change as 20 and not 30? where as in the FVOCI we consider the FV change as 30 ---- why do we consider transaction cost in FVOCI and not in amortized cost?
I think you have a typo in your slide at 13:05. In the right-hand side of the slide it should be "which assets are classed at FVTPL" instead of "which assets are classed at FV OCI"
No, taxation is governed by local tax laws. IFRS applies only for reporting to shareholdes and potential investors. IFRS treatment will not affect tax liability
@@RamMeyyappan It means that tax liability will still be based on the conventional accounting of P&L (incurred loss model)? While IFRS9 is another set of books submitted to shareholders and potential investors? 2 sets of FS reporting?
Yes, you could say that. Two set of financial statements have to be prepared. technically you should not call tax reporting as conventional accounting. You should call it as financial statements prepared based on tax laws. Tax liability is determined by tax laws which in most countries is based on realised gain/loss.
@@RamMeyyappan Thanks for the previous clarification. I have another query. Are you familiar with Mark to Market concept of debt instruments investments? (MTM: 1. For MTM increase in AFS - Available for Sale, the GL entry would be a Debit to Allowance for MTM and a Credit to unrealized gain/loss Reserve account and vice-versa for decrease in MTM; 2. For MTM increase in HFT - Held for Trading, the GL entry would be a Debit to Allowance for MTM and a Credit to Gain from revaluation - P&L account and vice-versa for decrease in MTM ). Let's say Bank AAA invests in bonds (coupon bonds and zero-coupon bonds) and splits these bonds mainly into 3 portfolios as HTM (Held to Maturity), AFS (Available for Sale) and HFT (Held for Trading). Both initial recognition (Outright Purchase), subsequent measurement (MTM/Portfolio Transfer/accretion) and de-recognition (Outright Sale/Redemption) are already recorded daily in SAP (only 1 set of book) in such a way similar to IFRS9 standard. FYI: This bank is a government entity and thus tax exempt. For HTM portfolio, selling is not allowed, thus there is no MTM but there is daily accretion of the difference between acquisition cost and face value till bond reaches maturity. (ACCRETION: In case when bond was acquired on a Premium in HTM and AFS, the GL entry would be a Debit to Income from Investment and Credit to Investment account and vice-versa when bond was acquired on a Discount). HTM is your Amortized Cost category. For AFS, it is like HTM where accretion takes place but is measured at FV daily (except on bank holidays and weekends) and can sell the bond anytime (There is MTM and sales is allowed). AFS is your FVTOCI model since the difference between market price and cost is lodged into Reserves and not P&L. When sold though (de-recognized), gain on sale is booked into P&L. Lastly for HFT, It is like AFS but there is no daily accretion as the difference between acquisition costs and face value is immediately recognized as profit/loss and lodged into P&L and not into reserves (equity). This is your FVTPL. HTM portofolio debt instrument contracts (bonds) passes the SPPI (solely payments for principal and interests contracts) test and BMT (Business Model Test). AFS passes SPPI partially but does not totally passes the BMT test as bank can sell the bonds anytime and holding period is less than HTM. Lastly, HFT passes SPPI but does not pass BMT Test as the bonds here are mainly for trading purposes only and holding period is the least among these 3 portoflios. There is no impairment recorded in this FA (Financial Assets)/bond instruments and not retail loans supplied by banks. The bank will implement IFRS9 for all FA reporting in Jan 2020 to include Loans in Core Banking as well. Deposits (FL - financial liabilities) are not to be reported in IFRS9, right? How do you think the bank will implement to be IFRS9 compliant by 2020? What strategies can they make to prepare for the change? I will keep in mind that IFRS9 is only for separate reporting purposes and incurred loss/profit still remain as usual for tax purposes.
