IPSAS 41, Financial Instruments, establishes new requirements for classifying, recognizing and measuring financial instruments to replace those in IPSAS 29, Financial Instruments: Recognition and Measurement. The new standard has made the classification, recognition and measurement of financial instrument to be more or less in accordance with IFRS 9.

IPSAS 41 provides users of financial statements with more useful information than IPSAS 29, the current standard, by:

  • Applying a single classification and measurement model for financial assets that considers the characteristics of the asset’s cash flows and the objective for which the asset is held;
  • Applying a single forward-looking expected credit loss model that is applicable to all financial instruments subject to impairment testing; and
  • Applying an improved hedge accounting model that broadens the hedging arrangements in scope of the guidance. The model develops a strong link between an entity’s risk management strategies and the accounting treatment for instruments held as part of the risk management strategy.

The new standards is expected to result in

  • Simplified classification and measurements requirements for financial assets
  • A forward looking impairment model
  • A flexible hedge accounting model than arbitrary rules which in effective under the current IPSAS.

The effective date of IPSAS 41 is January 1, 2022, with earlier adoption encouraged. IPSAS 41 is applied retrospectively in accordance with IPSAS 3, Accounting Policies, Change in Accounting Estimates and Errors unless specific conditions are met.