Contingent Features and SPPI Test

IASB has amended IFRS 9 and IFRS 7 with respect to contingent features, which will take effect from reporting periods beginning on or after 1st January, 2026. We can expect similar amendments in Ind AS in the near term, probably taking effect from 1st April, 2026. The amendments provide some leeway, such that the SPPI test will be considered met even if there are contingent features in an instrument, that alter the contractual cash flows. The amendments were introduced to provide some relief in situations where contractual cash flows are altered because of reduction in carbon emissions. The amendments will apply to all contingent features including those relating to carbon emissions. In this article, the author has provided the existing requirements and the amendments in a very simplified question and answer format.

FINANCIAL ASSETS AND AMORTISED COST

Which are the financial assets that can be classified under the ‘amortised cost’ category?

A ‘debt instrument’ can be measured at the amortised cost if both the following conditions are met:

(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows, and

(b) Contractual terms of the asset give rise on specified dates