This free, guided checker walks your finance team through the key decision points for IFRS 9 Modification of Financial Assets. Answer a few questions to see the likely treatment and the evidence to document.
Answer a few quick questions below. It is private - nothing is submitted or stored - and takes about a minute.
This tool is a high-level IFRS screening aid for general information only and is not accounting, audit or legal advice. Conclusions require entity-specific evidence and judgement - confirm the treatment with your advisor.
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Identify whether the contractual cash flows themselves were renegotiated or otherwise altered - for example a rate reset, maturity extension, payment holiday, or waiver that changes amounts or timing - rather than a change captured only through revised estimates. Review amendment agreements, forbearance letters, and board approvals for the period to confirm a contractual change occurred. The common trap is treating a change in estimated cash flows within unchanged terms, which is handled through the effective interest rate under IFRS 9.B5.4.6, as a modification event.
No modification accounting applies because the contractual terms are unchanged; continue existing amortised cost or FVOCI measurement (IFRS 9.5.4.3).
Official guidance: IFRS issued standards
The modification gain or loss and derecognition guidance in IFRS 9.5.4.3 applies to financial assets measured at amortised cost and, through the effective interest mechanics, to FVOCI debt. Assets measured at fair value through profit or loss are instead remeasured to fair value, so the modification model does not apply to them.
Remeasure the asset to fair value through profit or loss; the IFRS 9.5.4.3 modification model does not apply to FVTPL assets (IFRS 9.4.1.4).
Official guidance: IFRS issued standards
Assess whether the modification is so substantial that the original contractual rights should be regarded as expired, which triggers derecognition of the original asset and recognition of a new one (IFRS 9.3.2.3; IFRS 9.B5.4.6). IFRS 9 sets no bright-line test for financial assets, so weigh both the quantitative change in cash flows and qualitative factors such as a change in currency, in the borrower, or the introduction of a new feature that breaches the SPPI condition. The common trap is assuming any renegotiation is non-substantial and defaulting to gross carrying amount recalculation without first performing the derecognition analysis.
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Official guidance: IFRS issued standards
When the modification results in derecognition, remove the original asset at its carrying amount, recognise the new asset at fair value, and take the difference to profit or loss (IFRS 9.3.2.12). For a debt instrument measured at FVOCI, reclassify the cumulative gain or loss previously recognised in other comprehensive income to profit or loss as a reclassification adjustment. The common trap is carrying the old amortised cost forward into the new asset instead of measuring the new asset at fair value at the modification date (IFRS 9.B5.4.6).
Complete the derecognition gain or loss and any FVOCI recycling before posting (IFRS 9.3.2.12).
Official guidance: IFRS issued standards
Where the asset is not derecognised, re-run the SPPI test on the modified contractual terms to confirm the cash flows remain solely payments of principal and interest on the principal outstanding (IFRS 9.4.1.2(b); IFRS 9.B4.1.7). Examine any new or repriced features - such as leverage, equity-linked returns, or contingent triggers - that could introduce exposure beyond a basic lending arrangement. The common trap is assuming a loan modification is automatically still SPPI-compliant; a single new feature can move the asset to fair value through profit or loss even without derecognition.
Reclassify the asset to fair value through profit or loss because the modified terms fail the SPPI test (IFRS 9.4.1.2(b); IFRS 9.B4.1.7).
Official guidance: IFRS issued standards
IFRS 9 has no bright-line derecognition test for financial assets; the assessment is qualitative under IFRS 9.3.2.3. In practice entities apply the 10 percent test from the financial-liability guidance (IFRS 9.B3.3.6) by analogy: a modification is treated as substantial when the present value of the modified cash flows, discounted at the original effective interest rate, differs from the remaining original cash flows by at least 10 percent, weighed together with qualitative factors.
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Official guidance: IFRS issued standards
When the modification is substantial, derecognise the original asset and recognise the modified asset as a new financial asset measured at fair value at the modification date (IFRS 9.B5.4.6). Determine a fresh effective interest rate, reset the expected credit loss measurement to initial recognition on the new asset, and record any derecognition gain or loss (IFRS 9.3.2.12). The common trap is continuing the original effective interest rate and credit-risk staging on what is, in substance, a new instrument.
Record the derecognition of the original asset and recognition of the new asset for the substantial modification (IFRS 9.B5.4.6).
Official guidance: IFRS issued standards
For a non-substantial modification, recalculate the gross carrying amount as the present value of the modified cash flows discounted at the original effective interest rate, and recognise the resulting adjustment as a modification gain or loss in profit or loss (IFRS 9.5.4.3; IFRS 9.B5.4.5). Keep the original effective interest rate and amortise any directly attributable costs or fees over the remaining term. The common trap is discounting at a current market rate or resetting the effective interest rate, which distorts the day-one modification gain or loss.
Recalculate the gross carrying amount using the modified cash flows and original effective interest rate, recognising the modification gain or loss (IFRS 9.5.4.3; IFRS 9.B5.4.5).
Official guidance: IFRS issued standards
Reassess staging by comparing the risk of default on the modified terms at the reporting date with the risk of default at initial recognition on the original terms (IFRS 9.B5.5.25-B5.5.27). A non-substantial modification does not by itself reset the asset or improve its credit risk; document whether a significant increase in credit risk exists or has reversed.
Reassess post-modification staging and expected credit losses before closing (IFRS 9.5.5.12; IFRS 9.B5.5.25).
Official guidance: IFRS issued standards
Document how the forbearance policy feeds the significant-increase-in-credit-risk assessment and stage transfers, since granting concessions to a distressed borrower is itself evidence of increased credit risk (IFRS 9.5.5.12; IFRS 9.B5.5.26). Retain evidence - a cure period and demonstrated payment performance - before moving a modified asset back to Stage 1. The common trap is automatically returning a forborne asset to Stage 1 on modification, which overstates the improvement in credit risk and understates the loss allowance.
Document the forbearance policy linkage to significant increases in credit risk and stage transfers (IFRS 9.B5.5.26).
Official guidance: IFRS issued standards
Prepare the modification note showing, for assets modified while a lifetime expected credit loss allowance was recognised, the amortised cost before modification and the net modification gain or loss (IFRS 7.35J(a)). Disclose the gross carrying amount of assets modified since initial recognition whose allowance has since reverted to a 12-month basis (IFRS 7.35J(b)), and explain how modifications and forbearance affect credit-risk staging (IFRS 7.35F). The common trap is reporting only the aggregate gain or loss without the credit-risk and staging linkage the standard requires.
Modification accounting and IFRS 7 disclosures are complete (IFRS 7.35F; IFRS 7.35J). Complete the IFRS 7 modification and credit-risk disclosures (IFRS 7.35F; IFRS 7.35J).
Official guidance: IFRS issued standards
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