IFRIC 9
Withdrawn
Reassessment of Embedded Derivatives
Clarified when an entity must reassess whether an embedded derivative should be separated from its host contract. Withdrawn in 2010 and its guidance absorbed directly into IFRS 9.
Withdrawn Standard
IFRIC 9 clarified WHEN an entity must reassess whether an embedded derivative should be separated from its host contract, generally prohibiting reassessment UNLESS there was a change in contract terms significantly modifying cash flows. This guidance was withdrawn and absorbed directly into IFRS 9's own embedded derivative requirements.
This poster is retained for historical and comparative reference. For current embedded derivative requirements, always apply IFRS 9.
Current Standard
IFRS 9 Financial Instruments 1
Conceptual Framework Linkage (Historical)
A stability-focused clarification, later absorbed into the standard itself
IFRIC 9 addressed WHEN an entity should REASSESS whether an embedded derivative required separate accounting after INITIAL recognition of the host contract. It concluded that reassessment was GENERALLY PROHIBITED, UNLESS there was a CHANGE in the terms of the contract that SIGNIFICANTLY MODIFIED the cash flows – providing STABILITY against continual re-evaluation as market conditions fluctuated.
WHY THIS ABSORPTION HAPPENED
Preventing artificial volatility – WITHOUT this "no reassessment" default rule, entities might have continually reclassified embedded derivatives as market conditions changed Conceptual continuity – when IFRS 9 was developed to replace IAS 39's financial instruments framework entirely, this reassessment logic was considered CORE enough to embed directly within the new standard
IFRIC 9 is a genuinely INSTRUCTIVE example, alongside IFRIC 4 and IFRIC 8, of an interpretation whose SUBSTANCE was absorbed almost entirely into its successor standard.
The core reassessment rule IFRIC 9 established
Reassess separation ONLY IF: contract terms change AND that change significantly modifies expected cash flows
ℹ️ This exact "no reassessment absent significant modification" default is preserved within IFRS 9's own embedded derivative framework.
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Scope & Definitions (Historical)
What IFRIC 9 covered
IFRIC 9 applied to hybrid contracts containing embedded derivatives, addressing the TIMING question of when the separation assessment (originally required under IAS 39) needed to be REVISITED after initial recognition.
Key definitions (historical)
Embedded derivative
A component of a hybrid contract that ALSO includes a non-derivative host contract, with cash flows varying similarly to a standalone derivative.
Significant modification of cash flows
A change in contract terms substantial enough to TRIGGER reassessment under IFRIC 9's exception – a threshold concept preserved in current guidance.
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The General Prohibition on Reassessment (Historical)
Stability as the default position
The DEFAULT rule was NO reassessment after initial recognition – an entity's ORIGINAL determination of whether an embedded derivative required separation generally STOOD for the life of the contract, preventing continual reclassification as market prices or conditions moved.
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The Significant Modification Exception (Historical)
Historical illustration
Example 1: A loan agreement amendment triggering reassessment
A company held a foreign currency-denominated loan (a hybrid contract). At initial recognition, this embedded feature did NOT require separation (closely related to the host). Two years later, the loan was AMENDED, converting the repayment basis to a commodity-price-linked formula UNRELATED to the original host contract terms.
This amendment represented a SIGNIFICANT MODIFICATION of the loan's cash flows, TRIGGERING a fresh reassessment under IFRIC 9 of whether the NEW embedded feature required separation from the host – an analysis that would reach the SAME conclusion under IFRS 9's current absorbed reassessment guidance today.
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Business Combinations & Reassessment (Historical)
A specific carve-out addressed by a later amendment
A LATER amendment to IFRIC 9 (2009) clarified that embedded derivatives in contracts ACQUIRED in a business combination, business combination under common control, or joint venture formation, were EXCLUDED from IFRIC 9's scope at the date of acquisition – this exclusion logic is ALSO preserved within IFRS 9's current framework.
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Interaction with the Host Contract Classification
Identical to the current approach
IFRIC 9's reassessment logic applied REGARDLESS of the host contract's own classification, focusing SOLELY on whether the embedded derivative's SEPARATION assessment needed revisiting – a distinction PRESERVED in IFRS 9's current framework.
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How This Guidance Became Part of IFRS 9
A genuinely instructive absorption case
When IFRS 9 was developed to REPLACE IAS 39's financial instruments framework in its entirety, the IASB determined IFRIC 9's reassessment logic remained VALID and should be incorporated DIRECTLY into IFRS 9 itself. IFRIC 9 was formally WITHDRAWN as IFRS 9 became effective.
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Common Historical Application Areas
Where this analysis was most frequently applied
Structured notes and convertible bonds with embedded conversion features, commodity-linked supply or purchase contracts, foreign currency-linked loan agreements, and contracts acquired in business combinations – ALL contexts where IFRS 9's current absorbed reassessment guidance remains equally relevant today.
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Disclosure (Historical)
Historical disclosure expectations
Nature of embedded derivatives reassessed following significant contract modifications Basis for concluding whether separation was required upon reassessment
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Judgments & Estimates (Historical)
Where judgement historically mattered most
SIGNIFICANT JUDGEMENTS
Whether a contract amendment constituted a "significant modification" of cash flows Whether an embedded feature remained "closely related" to the host upon reassessment
SIGNIFICANT ESTIMATES
Fair value of a newly separated embedded derivative upon reassessment
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IFRIC 9 vs Current IFRS 9 Approach
Comprehensive historical-to-current comparison
FeatureIFRIC 9 (historical)IFRS 9 (current)
Core reassessment ruleNo reassessment unless significant cash flow modificationSUBSTANTIALLY PRESERVED, embedded directly in the standard's own requirements
Location of guidanceSeparate interpretationAbsorbed directly into IFRS 9 itself
IFRIC 9 stands out, alongside IFRIC 4 and IFRIC 8, as a withdrawn interpretation whose CORE LOGIC survives almost entirely intact within its successor standard.
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Statement Mapping (Historical)
Where IFRIC 9 determinations historically fed into
ItemStatement(s) affectedNotes
Separated embedded derivative upon reassessmentSOFP P&LRecognised at fair value, changes through P&L
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Related Standards
Cross-reference map
StandardConnection
IFRS 9The CURRENT standard, absorbing IFRIC 9's reassessment logic directly
IAS 39The predecessor financial instruments standard IFRIC 9 originally supported
IFRS 3Governs the business combination context relevant to IFRIC 9's acquisition-date exclusion
Quick-reference glossary
Hybrid contract
A contract combining a non-derivative host with an embedded derivative feature – identical concept preserved in IFRS 9.
Closely related
The threshold test for whether an embedded derivative's economic characteristics align with the host, determining whether separation is required.
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Glossary
Embedded derivative
A component of a hybrid contract that also includes a non-derivative host contract, with cash flows varying similarly to a standalone derivative.
Significant modification of cash flows
A change in contract terms substantial enough to trigger reassessment under IFRIC 9's exception.
Hybrid contract
A contract combining a non-derivative host with an embedded derivative feature.
Financial statement key
BS Balance sheet
IS Income statement
SE Statement of changes in equity
OCI Other comprehensive income
SCF Statement of cash flows
History & Development
Jan-2006
In January 2006 the International Accounting Standards Board issued IFRIC 9 Reassessment of Embedded Derivatives. It was developed by the Interpretations Committee.
Oct-2010
IFRS 9 Financial Instruments issued
IFRIC 9 withdrawn and its reassessment logic absorbed directly into IFRS 9