Today we will talk about how financial assets are classified according to the new financial instrument standards, what is the difference between the old and the new standard, and how it will affect us in practice. Before writing this article, the author deliberately reviewed the instructions. While reading the original text of the instructions, I think many people have this experience: the instructions clearly know every word, but do not understand at all. This article tries to be easy to understand.
The difference between old and new rules -What is the difference between the new financial instrument standards and the old standards?
Difference 1: Change from "four categories" to "three categories". The following figure compares the classification according to the old and new standards. In fact, the old and new standard classification is about changing the soup, not the medicine.
Difference 2: section basics vary. From the original classification, based on the nature of the contract and the intentions and objectives, to the classification of "business model of business management of financial assets (test of the business model)" and "characteristics of contractual cash flow of assets financial (cash flow test) ".
1. Business model: refers to how a company manages financial assets to generate cash flows. The business model will determine whether the cash flows resulting from the holding of the company's financial assets are derived from the accumulation of cash under the contract, the sale of financial assets, or both.
This is called a "business model test" to determine which of the three types of business models is available.
2. Contract cash flow characteristics: refers to the cash flow characteristics agreed in the financial instrument contract and which reflect the economic characteristics of the relevant financial assets. For financial assets governed by Articles 17 and 18 of this Standard (New ISA 22), the nature of the cash flows of an entity under a contract must be consistent with the main loan agreements. That is, the cash flows of a contract arising from the relevant financial assets on a particular date are only interest based on the repayment of principal and the amount of principal outstanding.
To determine if a cash flow characteristic meets the above conditions, it is called a "cash flow test (SPPI test)" and if it meets the conditions, it is called a "pass the SPPI test."
2. Borrowing instruments:
1. Cash accumulation contract (and pass the SPPI test): financial assets measured at amortized cost;
2. Contract for the collection and sale of cash (and pass the SPPI test): financial assets measured at fair value and changes are included in other added income;
3. Others: financial assets measured at fair value and changes are included in current results.
4. Receivables: All initial receivables are recorded in bank First Bank USA Routing Number accounts receivable. According to the new rules, they are divided into financing documents to receive and to receive. Simply put: those used for approval or discount are classified as financial accounts receivable; Those that are planned to be retained until the due date for admission are still noted in the notes to be received. See previous articles for more information: New Financial Instruments Standards: What is Recipient Financing?
5. Financial assets ready for sale: The "triple" investment owned by any entity includes the initial standard at the expense of financial assets ready for sale. According to the new standard, a financial asset measured at fair value and changes should not include gains and losses. Accounting (business asset account). If the non-commercial conditions are met (article 19 of the new CAS 22), you can choose to allocate financial assets measured at fair value and the changes are included in other aggregate income (other investment accounts in equity instruments). It is important to know all the details of the beneficiary financial institution branch account swift code, address, and all that sufficient detail you need to fill on the paper.
6. Interest to receive and pay:
"Interest receivable" refers only to the interest that is due and may accrue on the relevant financial instrument but has not yet been received on the balance sheet date. Interest on a financial instrument calculated using the effective interest rate method must be included in the balance sheet of the relevant financial instrument.
"Interest payable" refers only to interest payable on the relevant financial instrument that has matured but not yet paid on the balance sheet date. Interest on financial instruments calculated using the effective interest rate method must be included in the balance sheet of the corresponding financial instrument.
How to understand the previous two paragraphs, for example, a short-term debt, the interest payment date should be calculated on the 20th of each month, then at the end of the month, usually from the 20th to the end of the month. Matter of accounting for interest in the primary standard: Other interest payable. The subject of this interest calculation under the new standard: short-term loans-interest to be repaid.
1. Wealth management products and structured reserves: they are generally placed in other current assets (long-term assets to be repaid in one year) and other assets based on long-term liquidity according to the initial standard; According to the new standard, it is necessary to transfer the lower layer to the main assets, see each case.
