Accounting Standards for Financial Instruments: Is IFRS 9 designed to confuse?

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The International Financial Reporting Standards (IFRS) 9 date back to the 2008 financial crisis and, in particular, the ensuing criticism about fair value accounting. After the International Accounting Standards Board (IASB) changed the rules in October 2008, political pressure – coming mainly from EU institutions – grew to further reduce the use of fair values on bank balance sheets. In response, IFRS 9 is introducing a new system for the classification and measurement of financial assets (based on the cash flow characteristics of the instrument and the firm’s business model behind the investment).

However, it still remains unclear whether the new standard will bring more transparency to markets and address the drawbacks of its predecessor, or whether it will lead to fragmentation, divergence and inconsistency. One way or another, it is widely acknowledged that there is much room for improvement with respect to its implementation. The panel concluded that more time is needed to fully understand its impact on financial reporting and on the real economy.

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