Malta: IFRS 9 For Non-Financial Institutions

Last Updated: 9 August 2018
Article by Jonathan Dingli and Simon Xuereb
Most Read Contributor in Malta, September 2019

IFRS 9 Financial Instruments, published in July 2014, is the new financial instruments standard which replaced IAS 39 Financial Instruments: Recognition and Measurement, and is effective for annual periods beginning on or after 1 January 2018. This new standard brings about major changes to the classification and measurement of an entity's financial assets and the calculation of impairment thereon, and is expected to have a major impact across all organisations, particularly financial institutions. Entities need to start planning for the transition from IAS 39 to IFRS 9 in order to understand the time, resources, processes and system changes which are needed to capture the new requirements of this new standard.

Although the new impairment model is expected to hit banks and other financial services companies the hardest, Non-Financial Institutions (NFIs) will also be impacted generally to a lesser extent. This article will review the classification and measurement implications on NFIs. The second part of this article, to be published in the next issue of the Accountant, will in turn look into the new impairment model's implications for NFIs.

Classification and measurement

The new classification requirements are based on the contractual cash flow characteristics test and the business model under which financial assets are held and managed. IFRS 9 has three primary measurement categories for financial assets, and whilst similar measurement bases also exist under IAS 39 (see Table 1), the criteria for measuring said assets under these bases will be significantly different.

Amortised cost L&R/HTM

FVTPL – Fair Value through Profit or Loss
L&R – Loans and receivables
HTM – Held to maturity
AFS – Available-for-Sale
FVOCI – Fair Value through Other Comprehensive Income


Table 1 – Measurement categories

Debt financial assets at amortised cost

Financial assets are classified and measured at amortised cost when the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest (the 'SPPI criterion') and the assets are held in a business model whose objective is to hold them in order to collect contractual cash flows. For example, plain vanilla bonds and trade receivable normally pass the SPPI test. If an entity holds such assets to collect contractual cash flows i.e. coupon and principal payments upon maturity, and amounts due from debtors, those will be measured at amortised cost.

To meet the SPPI criterion, cash flows received under said financial assets must consist only of principal (the fair value of an asset on initial recognition) and interest (consideration for time value of money, credit risk and other basic lending risks, other associated costs and a profit margin).

Under the held-to-collect (HTC) business model, sales of financial assets are only incidental to the objective of holding them to collect contractual cash flows.

Subsequent to initial recognition, entities will recognise in profit or loss, with respect to said financial assets, (i)interest revenue using the effective interest method, (ii) impairment losses and reversals, and (iii) any foreign exchange movements. On derecognition, the gain or loss is also recognised in profit or loss.

Financial assets at FVOCI

Debt financial assets are classified and measured at FVOCI when they meet the SPPI criterion and are held in a business model whose objective is achieved by both (i) collecting contractual cash flows and, (ii) selling financial assets. For example, a portfolio of plain vanilla bonds that pass the SPPI test which an entity holds to collect the contractual cash flows but, when an opportunity arises, investments are sold to re-invest the cash in investments with a higher return, would be classified under the FVOCI category.

The general rule for debt instruments measured at FVOCI is that any gains or losses are recognised in OCI except for interest revenue, impairment losses and reversals, and foreign exchange movements, which are instead recognised in profit or loss. When these debt instruments are derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss.

On the other hand, equity instruments follow a different measurement methodology. Firstly, they fail to meet the SPPI criterion and thus can never be measured at amortised cost. They are instead measured at FVTPL, with an irrevocable FVOCI option at initial recognition for equity instruments not held for trading. Under this FVOCI option, any gains or losses can never be reclassified to profit or loss even if the investment is sold, unlike with debt instruments at FVOCI. Only dividends are recognised in profit or loss – unless they clearly represent a repayment of part of the cost of the investment.

Financial assets at FVTPL

Financial assets classified and measured at FVTPL include all other instruments which are not measured at amortised cost or FVOCI, and includes financial instruments which are held for trading. There is also an irrevocable designation option to measure financial instruments at FVTPL if this eliminates or significantly reduces an accounting mismatch, which is the only designation option for financial assets explicitly retained from IAS 39.

Financial liabilities

On the other hand, most financial liabilities are measured at amortised cost, with some exceptions that include liabilities which are held for trading, or those liabilities for which the irrevocable designation option to measure them at FVTPL was taken. Classification and measurement of financial liabilities has not changed significantly when compared to IAS 39, except for the presentation of changes in the fair value of an FVTPL liability that is attributable to changes in the issuer's credit risk is now presented in OCI.


Table 2 illustrates a summary of the typical business models and the measurement of the financial instruments under the said models.

Classification Key Features Measurement
Debt instruments held-to-collect contractual cash flows
  • Objective: hold assets to collect contractual cash flows
  • Sales are incidental to the objective
  • Typically lowest sales (in frequency and volume)
Amortised cost*
Debt instruments held both to collect contractual cash flows and for sale
  • Objective: both collecting contractual cash flows and sales are integral to achieving the objective of the business model
  • Typically more sales (in frequency and volume) than held-to-collect business model
FVOCI* (fair value changes are presented in OCI, recycling to P&L)
Equity instruments at FVOCI
  • Equity instruments not held for trading
  • Option available at initial recognitionOption is irrevocable
FVOCI (fair value changes are presented in OCI without recycling to P&L)
  • Equity instruments not at FVOCI
  • Debt instruments that (i) fail the SPPI test or (ii) pass the SPPI test but are neither held-to-collect nor held-to-collect and for sale
FVTPL** (fair value changes are presented in P&L)

* Subject to meeting the SPPI criterion

** SPPI criterion is irrelevant – instruments in all such business models are measured at FVTPL


Table 2 – Business models

Impact of classification and measurement requirements on NFIs

The expected impact on NFIs with respect to classification and measurement will mainly depend on the cash flow characteristics of its financial instruments. The common types of financial instruments held by NFIs can broadly be grouped into two:

Loans, trade and lease receivables and contract assets

The new classification model must be applied to all receivables. If an entity mainly has financial instruments classified as 'loans and receivables' (IAS 39), little to no changes are anticipated on transition to IFRS 9 as they are generally expected to meet the criteria to be classified at amortised cost (IFRS 9), provided that the SPPI criterion are met.

NFIs should review the contractual terms to comply with IFRS 9. In doing so, they must evaluate the impact of different accounting policy choices, and review management information under the current requirements, and asses how this could be aligned with the new classification and measurement requirements

Investment securities

The classification of investments will depend on each investment's contractual cash flows and how NFIs manage groups of investments. All investments in equity instruments, including unquoted shares, will be classified at FVTPL subject to an option to classify them at FVOCI if the investment is not held for trading. The cost exemption under IAS 39 for unquoted equity investments has been removed – consequently NFIs must now measure the fair value of these investments and can no longer retain their measurement at cost.

Corporate debt and equity securities will require careful analysis to determine their new classification and measurement under IFRS 9. A financial instrument which is classified as HTM under IAS 39, and which will now be measured at amortised cost, will possibly only result in a minor change in presentation from "HTM debt security" to "debt security at amortised cost". On the other hand, an AFS debt security, which is measured at fair value under IAS 39, might now be classified at amortised cost, FVOCI or FVTPL under IFRS 9, depending on the business model it is held in, thus resulting in different measurements. Therefore, a thorough assessment is key, as each classification and measurement category may significantly change the way an NFI accounts for these types of financial instruments.

NFIs should thus review the contractual terms of investments and analyse and document the business models for managing investments.


Transitioning to the new classification and measurement models under IFRS 9 may result in P/L volatility and balance sheet impact to varying degrees, depending on the nature of an NFI's financial assets and the underlying business models. At post-implementation stage entities may have to implement new processes and controls to monitor financial assets' cash flow characteristics and demonstrate adherence to their business models.

In the second part of this article we will review how the new impairment model will apply to NFIs as they need to provide for expected credit losses on their trade, lease receivables, contract assets and financial investments.


This article was originally published on The Accountant.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions