ACCA FR Syllabus B. Accounting For Transactions In Financial Statements - Why the need for a standard on Financial Instruments - Notes ^{1 / 10}

a) Explain the Need for an Accounting Standard on Financial Instruments

Why IFRS 9 (Financial Instruments) Is Needed:

• Financial instruments can be complex and diverse (e.g. derivatives, bonds, shares, loans).
• Without a standard, entities may apply different accounting treatments, leading to:
  • Inconsistencies in financial reporting
  • Reduced comparability between entities
• IFRS 9 ensures:
  • Clear classification and measurement rules
  • Consistent recognition of gains, losses, and impairments
  • Reliable information for credit risk and expected credit losses (ECL)

Benefits for Users of Financial Statements:

• Assess the entity’s:
  • Risk exposure
  • Liquidity
  • Financial stability
• Make better decisions based on reliable and comparable financial information

IFRS 9 improves transparency and consistency in accounting for financial instruments across entities and industries. *