The annual improvements process aims to improve the clarity and internal consistency of IFRS Accounting Standards. In this volume of improvements, the International Accounting Standards Board (IASB) makes minor amendments to IFRS 9 Financial Instruments and to a further four accounting standards1. The amendments to IFRS 9 address:
- a conflict between IFRS 9 and IFRS 15 Revenue from Contracts with Customers over the initial measurement of trade receivables; and
- how a lessee accounts for the derecognition of a lease liability under paragraph 23 of IFRS 9.
The amendment on trade receivables may require some companies to change their accounting policy.
We welcome the IASB resolving the conflict between IFRS 9 and IFRS 15 over the initial measurement of a trade receivable. Regarding lease liabilities, we hope that the IASB will go on to address how to distinguish between a lease modification and the derecognition of a lease liability in a future project.
Amendment on trade receivables could prompt accounting policy change
The IASB’s amendments remove the conflict between IFRS 9 and IFRS 15 over the amount at which a trade receivable is initially measured.
Under IFRS 15, a trade receivable may be recognised at an amount that differs from the transaction price – e.g. when the transaction price is variable. Conversely, IFRS 9 requires that companies initially measure trade receivables without a significant financing component at the transaction price.
The IASB has amended IFRS 9 to require companies to initially measure a trade receivable without a significant financing component at the amount determined by applying IFRS 15.
Other amendments include derecognising lease liabilities
If a lease liability is derecognised, then the derecognition is accounted for under IFRS 9. However, when a lease liability is modified, the modification is accounted for under IFRS 16 Leases.
The IASB’s amendment states that when lease liabilities are derecognised under IFRS 9, the difference between the carrying amount and the consideration paid is recognised in profit or loss. However, the amendment does not address how to distinguish between derecognition and modification of a lease liability. The IASB has indicated that it may consider this issue as part of a future project.
Effective date and transition
The amendments apply for annual reporting periods beginning on or after 1 January 2026. Earlier application is permitted.
The amendment on derecognition of lease liabilities applies only to lease liabilities extinguished on or after the beginning of the annual reporting period in which the amendment is first applied.
1 IFRS 1 First-time Adoption of International Financial Reporting Standards; IFRS 7 Financial Instruments: Disclosures; IFRS 10 Consolidated Financial Statements; IAS 7 Statement of Cash Flows
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