Financial instruments are critical building blocks of the financial statements of the entities. If you look back 40 years these items were straightforward in terms of accounting and could be faithfully explained and presented trough relatively simple recognition and measurement rules and straightforward disclosures.
In the past decades the financial instruments became extremely complex thus the accounting rules are also not only lengthy but complicated requiring not only accounting skills, but also knowledge from the various field: finance, statistics econometrics etc.
The introduction of IFRS 9 – that came in force for business periods commencing on or after 1st January 2018 – includes these complications: both measurement rules and calculation of credit losses are regulated in details trying to grasp the economic phenomena.
The DIPCAT Project
We are developing a case study that focuses on the complexity of the accounting regulation of financial instruments under IFRS. We look at a company that is operating on international scale in the eco-fashion industry. We will look at two aspects of IFRS 9.
The company acquires financing and does various investments. In the first case study we examine the characteristics of these not-so-plain-vanilla instruments. The case will walk participants trough the important decisions and judgements and the participants will make decisions on classification and measurement.
In the second case study the focus will be on the expected credit loss model. Using statistical skills, participants will be required to carry out calculations in given scenarios estimated how much is the expected credit loss and how will it effect the earnings and the net assets.
The case is being designed to cover a multitude of issues which, taken in its entirety, would necessitate a full semester’s engagement. The elements that will be considered in DIPCAT’s Intensive Study Programmes are narrowly focused and foundational but given the complexity of the issue, even the fundamental questions will require broad knowledge from the participants.