The new Financial Instruments standard substantially improves the relevance of information for financial assets and financial liabilities. It will replace IPSAS 29, Financial Instruments: Recognition and Measurement, and improves that standard’s requirements by introducing:
- Simplified classification and measurement requirements for financial assets;
- A forward looking impairment model; and
- A flexible hedge accounting model.
The new Financial Instruments standard is effective for periods beginning on or after January 1, 2023.
Why Change the Financial Instruments Standard?
The IPSASB's goal was to address stakeholder concerns with IPSAS 29. In IPSAS 29, requirements for reporting financial instruments were found to be complex and the information provided to users was insufficient.
Undertaking a project to update its financial instruments guidance allowed the IPSASB to maintain convergence with International Financial Reporting Standards (IFRS) and to improve existing IPSAS by making them more principles-based and addressing issues with the existing financial instruments standards.
- Introduction of IPSAS 41, Financial Instruments
- Substantial modification of IPSAS 29, Financial Instruments: Recognition and Measurement (only hedge accounting is maintained which can be applied if an election is made in IPSAS 41 if certaincriteria are met)
- Amendments to IPSAS 28, Financial Instruments: Presentation, and IPSAS 30, Financial Instruments: Disclosures
- Additional guidance in IPSAS 41, Financial Instruments relating to public sector specific financial instruments
What are the Intended Benefits?
The new financial instruments standard introduces:
- A principles-based classification model that allows stakeholders to move away from the existing rules-based approach;
- A single forward-looking expected credit loss model that is applicable to all financial instruments subject to impairment testing and that provides more relevant and faithfully representative impairment information on a more timely basis for users; and
- An improved hedge accounting model that broadens the hedging arrangements in scope of the guidance.
What Can You Do?
Effective implementation is critical to the success of IPSAS 41. You have an important role in affecting the change you want to see in financial instruments.
Join the IPSASB in promoting the new Financial Instruments standard. Engage in dialogue with us, and among yourselves about what's new.