Equity and debt financial instruments. Essence and classification of financial instruments. Types of financial instruments

As noted in Chapter 2, a financial asset is an intangible asset whose value arises from a contractual relationship. Unlike objects that have a tangible form, financial assets are contracts that exist in documentary (paper) or non-documentary (electronic) form.

Financial assets include securities (stocks and bonds), agreements on making deposits in a bank or on purchasing shares of investment and pension funds, insurance policies, etc. Their characteristics are given in Table. 8.1.

Table 8.1

List of main types of financial assets

Financial assets reflect property rights and have the following properties:

O represent documents or contracts certifying a property right in the form of a title of ownership (for example, ordinary and preferred shares of enterprises) or a property right as a loan relationship (for example, government and corporate bonds, bank deposits, certificates of deposit and savings, bills, etc.) ;

O are requirements for real assets of business entities that issued a financial asset (states, organizations, individuals);

O are a certificate of investment for owners of financial assets;

O bring income to the owners of financial assets, that is, they are capital for the owners.

This is fictitious capital, not real, since its movement mediates the distribution of material values.

The properties of financial assets are:

legal recognition,

negotiability (the ability to be the object of free purchase/sale on the market, if they relate to stock market instruments),

standardization (presence of a legally established list of mandatory details),

liquidity (ability to convert into cash),

risk (the amount of expected income is not always precisely determined), etc.

Thus, a financial asset is a document or contract that has a monetary value, reflects the property rights associated with it, can independently circulate on the market and be the object of purchase and sale or other transactions, and also serves as a source of income, acting as a type of monetary capital.

The classification of financial assets is presented in table. 8.2.

Table 8.2

Classification of financial assets

Financial assets are the most liquid investment objects. However, the price of such assets may deviate significantly from their nominal or fair value. Thus, investments in financial assets are associated with increased risk. Currently, there are many different financial instruments that can act as investment objects. However, the main share of such investments is made in stock market instruments - securities.

As noted in Chapter 2, according to the Civil Code of the Russian Federation, a security is a document certifying, in compliance with the established form and mandatory details, property rights, the exercise or transfer of which is possible only upon presentation.

A security is a form of capital existence that circulates on the market as a commodity and generates income. In this case, the owner does not have the capital itself in commodity or monetary form, but has all the rights to the asset recorded in the security. In legal terms, securities include documents reflecting property relations.

The main functions of securities are:

· redistribution of monetary capital;

· granting additional rights to their owner in the field of management and information;

· the right to receive income on capital and return of capital.

Securities vary depending on the form of ownership, form of issue, nature of negotiability, and degree of investment risk.

The properties of securities include their ability to be exchanged for money by sale, return to the issuer, assignment of rights of use, negotiability, the ability to act as collateral, storage for a number of years or indefinitely, and transfer by inheritance.

Securities can be registered (the name of the owner is indicated in the security, a register is maintained), bearer (for example, bonds, the circulation of which does not require registration) and order (transferred by order of the owner - for example, a bill, a check).

Securities in the Russian Federation are also divided into emission and non-emission. An issue-grade security secures the property and non-property rights of the owners, subject to certification, assignment and unconditional implementation; posted in releases; has equal volume and terms of exercise of rights within one issue, regardless of time. Securities that do not meet at least one of these requirements are classified as non-equity.

Securities include stocks, bonds and options.

A share is an issue-grade security that secures the rights of its owner (shareholder) to receive part of the profit of the joint-stock company in the form of dividends, to participate in the management of the joint-stock company and to part of the property remaining after its liquidation.

The size of the ownership share is determined by the number of shares owned by the owner. The share gives its owner the right to receive part of the profit from the activities of the enterprise and to participate in its management. Formally, they have an unlimited circulation period. In the Russian Federation, open joint stock companies (OJSC) and closed joint stock companies (CJSC) have the right to issue shares.

Based on the characteristics, the following types of shares can be distinguished.

Depending on the type of joint stock companies (JSC), shares of open and closed JSC are distinguished. Shares of open joint stock companies can be freely sold by their owners without the consent of other shareholders of this company. When selling shares of a closed joint-stock company, it is necessary to take into account that its shareholders have a pre-emptive right to purchase them. In this case, the period for exercising this right cannot be less than 30 days and more than 60 days. CJSC shares can be issued only by private subscription and cannot be offered for purchase to an unlimited number of persons. A closed joint-stock company can conduct both open and closed subscriptions for issued shares.

Depending on the rights granted, shares are divided into preferred and ordinary.

The par value of the issued preferred shares must not exceed 25% of the company's authorized capital. Preferred shares do not give voting rights at a meeting of shareholders (i.e., the right to participate in the management of the enterprise), but their owners have a number of advantages. Dividends on preferred shares are fixed upon issue and, as a rule, are paid regardless of the results of the enterprise's economic activities. The owner of a preferred share has a preferential right over the holder of ordinary shares to reimbursement of the par value of the share upon liquidation of the joint stock company.

There are several types of preferred shares.

Cumulative Preferred Shares - Any accrued but undeclared dividends are accumulated and paid on those shares before dividends on common shares are declared.

Non-cumulative preferred shares - holders of these shares lose dividends for any period in which their payment is not declared;

Equity preferred shares - these shares entitle their holders to receive additional dividends above the declared amount if dividends on common shares exceed the declared amount;

♦ convertible preferred shares - shares can be exchanged for a set number of ordinary shares in pre-agreed proportions;

♦ preferred shares with an adjusted dividend rate - payments on these shares are adjusted taking into account the dynamics of market interest rates;

♦ revocable preferred shares - contain the right of recall, i.e. the issuer can buy them back at an agreed price.

The characteristics of preferred shares can be combined. As already noted, the most important property of preferred shares is the ability to convert into ordinary shares. In the Russian Federation, such conversion was carried out by OJSC Norilsk Nickel (1999), Lukoil (2001), Rosneft (2003), Power Machines (2005), etc.

Ordinary shares constitute the main share of the authorized capital of the JSC. According to the Minimum authorized capital of an open company, it must be no less than a thousand times the minimum wage (minimum wage) established by federal law on the date of registration of the company, and a closed company - no less than a hundred times the minimum wage established by federal law on the date of state registration of the company.

Ordinary shares reflect the contribution of their owner to the authorized capital of the joint-stock company. The share of ordinary shares in the authorized capital determines the number of votes that their owner has the right to resolve issues related to management. The owner of ordinary shares has the right to receive income from net profit in the form of a dividend. The dividend on an ordinary share is not fixed in advance; is paid only if there is net profit, i.e. profits from which taxes, interest on bonds issued or loans taken, and dividends on preferred shares have been prepaid. The size of the dividend is approved by the general meeting upon the proposal of the board of directors. The meeting of shareholders may reduce the size of dividends or decide on their capitalization. Dividends may be paid in shares. Such a decision is accompanied by the issue of a new number of shares and is aimed at increasing the authorized capital of the joint-stock company. The owner of ordinary shares has a pre-emptive right to purchase shares of additional issues. When a joint stock company is liquidated, part of the company's net assets is returned to the owner on a residual basis (after payment of all debts of the joint stock company and redemption of preferred shares at par).

Stocks are riskier securities compared to bonds, so they attract investors with the possibility of receiving increased income, which can consist of dividends and capital gains due to an increase in their price. Due to their increased yields, stocks typically provide better inflation protection than debt.

Both types of shares are perpetual and are based on ownership.

Bonds are debt securities that certify a loan relationship between its owner (investor) and the issuer. They show that their owner lent money (to the state or corporation). This entitles him to receive fixed interest during the life of the bond and to repay the bond at par at the end of that period.

According to the Law of the Russian Federation “On the Securities Market”, a bond is an issue-grade security that secures the right of its holder to receive from the issuer within the specified period its nominal value and the percentage of this value fixed in it or other property equivalent. A bond may provide for other property rights of its holder, if this does not contradict the legislation of the Russian Federation.

A bond usually contains the following basic details: name of the issuer, type of bond, par value, issue date, maturity date, rights upon redemption (if any), interest rate, date and place of interest payment, indication of the issue agreement.

In the Russian Federation, bonds are issued in book-entry form, and their nominal value is standardized and taken equal to 1000 rubles.

Depending on the type of issuer, government (federal and constituent entities of the Federation), municipal and corporate bonds are distinguished.

Government bonds are loans from the Government of the Russian Federation and the constituent entities of the Federation, carried out on the domestic and foreign markets. These loans are used to finance the budget deficit, targeted programs implemented by federal and local authorities, and support socially significant objects, organizations, and institutions.

There are the following types of government securities in the Russian Federation:

zero-coupon short-term bonds (GKOs);

federal loan bonds (OFZ);

domestic currency loan bonds (OVVZ).

OVVZ, Eurobonds of the Ministry of Finance of Russia and some constituent entities of the Federation are in circulation on international markets.

Joint-stock companies (JSC) have the right to issue corporate bonds in an amount not exceeding the amount of the authorized capital or the amount of security provided by the company for these purposes by third parties, after full payment of the authorized capital. In the absence of collateral, the issue of bonds is permitted no earlier than the third year of the joint-stock company’s existence, provided that two annual balance sheets are properly approved by this year.

The corporate bond market in the Russian Federation is growing rapidly. Currently, almost all leading enterprises have issued various types of bonds. The sectoral structure of corporate bonds as of January 1, 2006 is shown in Fig. 8.1.

Rice. 8.1. Industry structure of the corporate bond market

Holders of corporate bonds do not have the rights of owners of a commercial organization and cannot take part in its management. However, owning bonds gives them a number of advantages:

bonds provide guaranteed income and are less risky investments compared to stocks;

payment of interest on bonds is mandatory and must be made regardless of the results of economic activity; if the issuer becomes bankrupt, then first of all its obligations to bondholders are repaid, and only then the remaining assets are distributed among the owners (shareholders);

According to Russian legislation, income from investments in state and municipal bonds is subject to preferential taxation, etc.

Bonds, like a number of other debt instruments, are usually classified as fixed income securities. Preferred shares may also be included in this class if they provide for the payment of a fixed dividend.

According to the form of income payment, bonds can be divided into:

coupon, with a fixed or floating coupon rate;

discount (zero-coupon) or zero-coupon bonds;

with payment of income at the time of repayment.

Coupon bonds, along with the return of principal, provide for periodic cash payments. The size of these payments is determined by the coupon rate (k), expressed as a percentage of the face value. Coupon payments are made 1, 2 or 4 times a year.

The quality of securities is assessed using special types of analysis - fundamental and technical.

Fundamental analysis is based on an assessment of the issuer's financial position, its income, profit, profitability, asset growth, and business activity. As a result, conclusions are drawn about the overvalued or undervalued securities in comparison with the real value of the issuer's assets and an income forecast is drawn up, which determines the future value and price of the stock.

Technical analysis is based on the fact that all factors are reflected in stock market prices and the movement of exchange rates. The object of technical analysis is the supply and demand of securities, the dynamics of transaction volumes, and the dynamics of securities prices.

One way to characterize the securities market is a rating assessment. It is given to each type of securities of all corporations. The rating is determined expertly by rating agencies. They check the investment qualities of securities and assign a rating to it. The highest rating is given to securities with the highest category of reliability. The lowest rating is assigned to highly speculative securities with a high risk of non-payment of income. For an investor, a rating is information about the advisability of buying or selling securities; for an issuer, a rating can increase the liquidity of securities.

Modern capital market theory states that the value of financial instruments depends on the cash receipts or payments generated by the financial instrument in the future. Thus, an abstract cash flow model can be used to describe an arbitrary financial instrument.

Cash flow model represents a set of cash payments received at different points in time. Cash payments can have a positive sign - this means that the holder of this cash flow receives a payment; and a negative sign if the cash flow holder makes a payment.

Depending on the nature of payments, cash flows can be divided into three types: cash flows with certain, uncertain and conditional payments.

Certain cash flows– these are those for which at the time of assessment the values ​​of future payments and the moments of their receipt are known. Financial instruments that can be described using a specific cash flow model include debt instruments. For example, coupon bonds with a fixed coupon rate or bank deposits with a fixed rate.

Uncertain Cash Flows assume unknown future payments. The amount of future payments in such cash flows is considered as a random variable with some probability distribution function. Using the uncertain cash flow model, you can describe financial instruments that have an equity nature, such as shares.

Conditional cash flows assume that future payments are equal to a certain amount if some condition is met. The conditional cash flow model is used to describe financial instruments such as options.

The basis for assessing the value of cash flows is the idea of ​​the time value of money. Amounts of money of the same size that come to the disposal of an economic entity at different points in time differ in their value for it. A ruble today turns out to be more valuable than a ruble that may arrive in a year. This happens because today’s ruble can be invested in an income-generating asset and in a year you will receive an amount greater than one ruble by the amount of interest payments. Thus, in order to compare amounts of money received at different times, it is necessary to bring them to one point in time. For this purpose, discounting and compounding operations are used.

Discounting– bringing cash flows at different times to the initial moment.

Extension– bringing multi-temporal cash flows to a future point in time.

Discounting and accretion operations are carried out taking into account the possibility of an alternative deposit with returns in the form of periodic interest payments. Interest payments can be calculated in various ways.

There are two interest calculation schemes in practical use: simple and compound interest.

Simple interest scheme - accrual of interest payments without taking into account accumulated income (without taking into account reinvestment of interest payments).

Compound Interest Scheme– calculation of interest payments taking into account accumulated income (including reinvestment of interest payments).

Let FV be the future value, PV be the current value, r be the interest rate on the alternative deposit, measured in fractions of a unit, t be the number of periods for calculating interest payments (time). Using the simple interest scheme we can write:

FV = PV / (1 + rt).

According to the compound interest scheme:

FV = PV / (1 + r) t .

Here the factors (1 + rt) and (1 + r) t are called increment factors. Or relative to the current value:

Here are the multipliers:

are called discount factors.

Most often, the calculation of simple interest is used when assessing the cost and profitability of short-term financial instruments (with a maturity of up to one year), and the compound interest scheme is used when calculating medium- and long-term financial instruments (with a maturity of more than one year).

Debt financial instruments can be represented as a cash flow model with certain future payments. We will consider a classic coupon bond as the object of evaluation, although the model can also be used to evaluate bank loans and deposits, bank deposit and savings certificates, discount bonds and bills.

Consider a bond with a face value N, repayment period T(years), coupon interest q and annual coupon payment. We will denote the rate on an alternative deposit r.

Such a bond creates the following cash flow of payments:

QN every year for T years,

In the year T payment of face value is added N.

This bond is called bond with a constant coupon. To estimate its value, you can apply a certain cash flow model, so that its theoretical value will be equal to:

PV = + + …+ = qN∙

The price of bonds is only one characteristic of them. Several other characteristics are used to describe bonds. The indicator used coupon yield of the bond, which is the coupon rate q. We can talk about current bond yield, which is calculated as the ratio of the annual coupon payment to the market value of the bond.

The most important and accurate characteristic of a bond is its yield to maturity, which is equal to the internal rate of return of the cash flow generated by this bond. Bond yield to maturity (r) can be calculated by solving the following equation where R indicates the real market value of the bond relative to r:

The yield to maturity of a bond is a key characteristic of a bond because it reflects the market price of the debt, which is issued in the form of a bond. The market forms the bond's yield to maturity, and the market value is calculated as its theoretical value, where instead of the rate on an alternative deposit, the market indicator of the bond's yield to maturity is used.

The theoretical and market values ​​of a bond may differ in relation to its face value. They can be greater than, less than, or equal to the par value.

The coupon bond cost model can also be applied to calculating the cost discount bond taking into account that q= 0. A discount bond has a degenerate cash flow, consisting of one payment - the par value at the time of maturity of the bond. Since discount bonds often exist as short-term instruments, simple interest can be used to estimate their value. The cost of a discount bond under simple and compound interest schemes is respectively equal to:

The discount bond valuation model can be applied to estimate the value of promissory notes.

Most common equity instruments are preferred and ordinary shares. The main characteristics that describe the circulation of a stock on the market are the amount of dividend income and the exchange rate that corresponds to the price of the stock. The difference between preferred and common stock is the cash flow they generate.

Preference shares create a certain cash flow, since in accordance with Russian legislation the amount of dividends on preferred shares in most cases is determined or can be calculated. Common shares generate cash flow of uncertain magnitude.

Preferred share valuation model for the period is based on the assumption that the holding period of the share is limited in time and equal to T. During this period, the shareholder receives a stream of dividends, which are further designated Div t(t= 1,..., 7), and in the future can sell the share at a price R T . We also use the notation E – expected dividend value and E[R T]– the expected future value of the stock. Then the current share price R can be calculated using the following model:

The discount rate used here is the rate of the minimum acceptable return expected by the investor.

Ordinary shares generate uncertain cash flows, the valuation of which turns out to be quite a difficult task. Stocks are risky instruments compared to bonds because they carry the risk of uncertain cash flow returns. This means that an investor, when buying a share, will expect a higher return from it than from a similar (in terms of numerical characteristics) bond. In practice, to estimate the cost of capital raised through ordinary shares, the following is used:

· Gordon's model;

· fixed asset valuation model (CAPM).

Gordon's model assumes that the company is currently paying dividends of D, which will increase evenly in the future at a constant rate g. The model can be presented as follows:

P – price (market) of an ordinary share at the time of valuation;

D – expected dividend within one year;

r – expected return of the stock;

g – dividend growth rate (it is assumed that it will be constant for the entire period).

Having transformed the model, we obtain the return on the stock or the cost of attracted capital in the form of ordinary shares (r):

An alternative approach to estimating the cost of capital raised through common stock is the capital asset pricing model (CAPM).

In order to use the CAPM model, you must have the following information:

1. level of risk-free income – r f . The CAPM model is based on the assumption that the return on a security is equal to the risk-free return plus a risk premium. In the United States, the benchmark for risk-free return is the three-month Treasury bill, which is considered a risk-free investment because it represents a direct obligation of the US government and has a maturity short enough to minimize the risks of inflation and changes in market interest rates. The risk-free rate can be considered the minimum return that an investor expects when working with stocks;

2. ß (beta) – stock ratio, which is an index of systematic (market) risk;

3. level of return on the market - r m, which is determined from a composite stock index (for example, Dow Jones 30 - a price-weighted average index that includes 30 shares of blue chip companies);

4. the expected level of return on ordinary shares of a company using the CAPM model.

The level of return (r), which will actually be the price (or cost) of the attracted capital in the form of ordinary shares, is determined by the formula

An organization in the process of doing business is faced with various types of debt financial assets. But not all types of such assets are covered by IFRS 9. Thus, the scope of its application does not include:

• lease receivables [but the derecognition and impairment requirements of IFRS 9 apply to lease receivables recognized by the lessor];
• claims arising from employers under employee benefit plans to which IAS 19 Employee Benefits applies;
• rights of claim under insurance contracts (except for contracts of financial guarantees) and rights of claim under contracts containing conditions for discretionary participation;
• financial instruments, contracts and obligations in those share-based payment transactions to which IFRS 2 Share-based Payment applies;
• rights to receive payments to offset the costs that an entity must make to settle a liability that it recognizes as a provision in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, or for which it has previously recognized provision in accordance with IAS 37;
• rights that are financial instruments and within the scope of IFRS 15 Revenue from Contracts with Customers, other than those that IFRS 15 requires to be accounted for in accordance with this Standard [para. 2.1 IFRS 9]; however, for the purposes of recognizing gains or losses from impairment of rights, which, according to IFRS 15, are accounted for in accordance with this standard, the requirements of this standard regarding impairment are applied [p. 2.2 IFRS 9].

Accounting for debt financial assets on initial application of IFRS 9

• business model, the purpose of which is to hold financial assets in order to receive contractual cash flows [p. 4.1.2 IFRS 9];
• business model, the goal of which is achieved both by receiving contractually stipulated cash flows and by selling financial assets [p. 4.1.2 IFRS 9].

The accounting of debt financial assets (bills, bonds, trade receivables, etc.) will depend on the chosen business model. Thus, a financial asset is accounted for at amortized cost if the following conditions are simultaneously met:

• the financial asset is held within the framework of a business model, the purpose of which is to hold the financial assets to collect contractual cash flows;
• The contractual terms of the financial asset provide for the receipt on specified dates of cash flows that are solely payments of principal and interest on the outstanding principal amount [p. 4.1.2 IFRS 9].

• the financial asset is held within the framework of a business model, the objective of which is achieved both by collecting contractual cash flows and by selling financial assets;
• The contractual terms of the financial asset provide for the receipt on specified dates of cash flows that are solely payments of principal and interest on the outstanding principal amount [p. 4.1.2A IFRS 9].

Example 1
Accounting for issued loans at fair value
Organization A issued bonds for 5 billion rubles. With the money raised as a result of the placement of bonds, rights of claim under loan agreements were acquired. It is known that changes in the fair value of acquired claims under loan agreements and issued bonds tend to cancel each other out. Organization A regularly buys and sells bonds of its own issue. But it does not sell the above-mentioned rights of claim under loan agreements. In this case, accounting for both claims and bonds at fair value through profit or loss eliminates the inconsistency in the timing of recognition of gains and losses. Otherwise, such a discrepancy would arise in connection with the measurement of claims under loan and bond agreements at amortized cost, as well as in connection with the recognition of gain or loss on each redemption of bonds.

Another important issue arises regarding the entity's ability to designate debt financial assets as measured at fair value through profit or loss at the date of initial application of IFRS 9. An entity has this option. As of the date of initial application of IFRS 9, an entity has the discretion to designate a financial asset as measured at fair value through profit or loss in accordance with paragraph 4.1.5 of IFRS 9. This decision must be made on the basis of the facts and circumstances existing at the date of initial application of IFRS 9. The classification chosen should be applied retrospectively [para. 7.2.8 IFRS 9].

You should also pay attention to the situation when, before the date of initial application, a debt financial asset (bond, bill, issued loan, etc.) had already been classified, at the discretion of the organization, into the category of financial assets accounted for at fair value through profit or loss.

At the date of initial application of IFRS 9, the financial asset must, in effect, be reclassified. If it is determined that, at the date of initial application, a debt financial asset should not be classified as at fair value through profit or loss because doing so would not eliminate or significantly reduce the accounting mismatch, the entity should reverse its previous decision. The decision to cancel must be made on the basis of the facts and circumstances existing at the date of initial application of IFRS 9. And the new classification of financial asset chosen must be applied retrospectively [para. 7.2.9 IFRS 9]. If it is determined that an asset can be classified as measured at fair value through profit or loss because it would eliminate or significantly reduce an accounting mismatch, the entity still has the right to reclassify that asset on the day it initially applies IFRS 9. At the date of initial application, an entity may reverse its previous designation of a financial asset as measured at fair value through profit or loss, even if accounting for that financial asset at fair value eliminates or significantly reduces the accounting mismatch [para. 7.2.9 IFRS 9]. The decision to withdraw a previous classification must be based on the facts and circumstances existing at the date of initial application of IFRS 9. However, the new classification chosen must be applied retrospectively.

In some cases, at the date of initial application of IFRS 9, an entity may determine that a debt financial asset previously measured at fair value through profit or loss is now accounted for at amortized cost. As discussed above, if, at the date of initial application of IFRS 9, an entity decides to account for a debt financial asset at amortized cost, that decision must be applied retrospectively. Therefore, it is necessary to apply the effective interest rate method retrospectively. But in some cases, retrospective application of the effective interest rate method may be impracticable for an organization. In such situations, the organization should consider:

• the fair value of the relevant financial asset, determined at the end of each comparative period presented, as the gross carrying amount of that financial asset if the entity restates prior periods;
• the fair value of the relevant financial asset determined at the date of initial application of IFRS 9 as the gross carrying amount of that financial asset in the new category at the date of initial application of IFRS 9 [para. 7.2.11 IFRS 9].

Impairment of debt financial assets

According to paragraph 46 of IAS 39, all financial assets, except those measured at fair value through profit or loss, are subject to impairment testing. At the end of each reporting period, it should be assessed whether there is objective evidence that a financial asset or group of financial assets is impaired [p. 58 IAS 39]. According to paragraph 59 of IAS 39, a financial asset or group of financial assets is impaired and impairment losses arise only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset. Such loss events affect the expected future cash flows of a financial asset or group of financial assets, the amount of which can be measured reliably. If there is objective evidence of an impairment loss on loans and receivables or held-to-maturity investments carried at amortized cost, the amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses, which were not incurred), discounted at the financial asset's original effective interest rate [p. 63 IAS 39].

IAS 39 requires recognition of only incurred losses from impairment of a financial asset. In practice, according to IAS 39, losses are recognized when the debtor fails to repay its debt on the due date specified in the contract. Expected losses, in accordance with IAS 39, should not be reflected in IFRS financial statements. This approach to recognizing impairment losses on financial assets has repeatedly been subject to serious criticism. According to users of IFRS financial statements, as a result of applying these recognition rules, impairment losses were reflected in the financial statements too late, after they had already been incurred. In fact, users of the organization's financial statements were presented with a fait accompli by informing them on the pages of the IFRS statements that the organization's financial assets had become worthless.

Taking into account these criticisms and taking into account the shortcomings of the model for accounting for impairment losses contained in IAS 39, the IASB decided to approve new rules for accounting for impairment losses. Therefore, the new standard for financial instruments, IFRS 9, contains fundamentally different rules for recognizing not only incurred, but also expected losses from the impairment of financial assets.

According to clause 5.5.1 of IFRS 9, an allowance for expected credit losses must be recognized for the following categories of financial assets:

• financial assets measured at amortized cost [p. 4.1.2 IFRS 9];
• debt financial assets measured at fair value through other comprehensive income [p. 4.1.2A IFRS 9];
• rent receivables;
• contract asset.

Example 2
Debt instrument measured at fair value through other comprehensive income

Organization K buys a bond with a fair value of RUB 1,000 on December 15, 2016. and measures it at fair value through other comprehensive income. The interest (also effective) rate on the bond is 5% per annum. The bond was issued for a period of 10 years. At initial recognition, the entity determined that the bond is not a credit-impaired financial asset.

The initial recognition of the bond is reflected in the accounting of organization K with the following entries:

Dt“Financial asset accounted for at fair value through OCI”—RUB 1,000.
CT

Payment of the bond price is reflected by the following posting:

Dt“Other accounts payable” - 1000 rubles.
CT“Cash and equivalents” - 1000 rubles.

As of December 31, 2016 (i.e., the reporting date), the fair value of the debt instrument decreased to RUB 950. as a result of changes in market interest rates. The entity has determined that there has been no significant increase in credit risk since initial recognition and that expected credit losses should be measured at an amount equal to 12-month expected credit losses, which is RUB 30. Therefore, as of December 31, 2016, the decrease in the fair value of the bond is reflected in the following entries:

Dt“Losses from impairment” - 30 rubles.
Dt
CT“Financial asset accounted for at fair value through OCI”—RUB 50.

The cumulative loss for other comprehensive expenses at the reporting date amounted to 20 rubles. This amount consists of the total change in fair value of RUB 50. (1000 rubles - 950 rubles), compensated by a change in the accumulated amount of impairment by 30 rubles, that is, expected credit losses for 12 months.

On 01/01/2017, the organization decides to sell the bond at a price of 950 rubles, which is its fair value as of this date.

Dt“Cash” - 950 rubles.
CT“Financial asset accounted for at fair value through OCI”—RUB 950.

Dt“Loss from impairment” - 20 rubles.
CT“Other comprehensive income (expense)” - 20 rubles.

The last transaction is for the amount of 20 rubles. is done in order to stop recognizing the amount of loss from the revaluation of a bond accumulated in other comprehensive income (expense). The amount accumulated in other comprehensive income (loss) is reclassified to profit or loss on the date the bond is sold.

For purposes of applying the above rules, a credit loss is the difference between all contractual cash flows due under the contract and all cash flows the entity expects to receive, discounted at the original effective rate. For acquired or originated credit-impaired assets, the effective interest rate adjusted for credit risk is used for this discounting.

At each reporting date, the allowance for losses on a financial asset must be measured in an amount equal to lifetime expected credit losses if the credit risk on that financial asset has increased significantly since initial recognition [para. 5.5.3 IFRS 9]. However, some exceptions must be taken into account.

Let's look at two examples of accounting for impairment losses: in accordance with IAS 39 and IFRS 9.

Example 3
Measuring credit losses under IAS 39
Organization D issued a loan to organization F in the amount of 1 million rubles. The loan term is 10 years. At initial recognition, Entity D determined that the loan originated has a 0.5% probability of default within the next 12 months. The probability of default assessment is based on expectations for instruments with similar credit risk (using reasonable and supportable information that is available without undue cost or effort), and also takes into account the borrower's credit risk and economic forecast for the next 12 months.

According to paragraph 58 of IAS 39, at the end of each reporting period, an organization must assess whether there is objective evidence that a financial asset or group of financial assets is impaired. It is considered that a financial asset or group of financial assets has been impaired and impairment losses have been incurred only if there is objective evidence of impairment. At the same time, losses expected as a result of future events are not recognized regardless of the degree of probability of their occurrence [p. 59 IAS 39].

Since there is no objective evidence that the financial asset is impaired at the reporting date, Entity D does not recognize any impairment losses on loans. Losses expected to result from future events are not recognized.

Now, for comparison, let’s look at how impairment losses are accounted for in this case in accordance with IFRS 9.

Example 4
Estimation of 12-month expected credit losses
Organization D issued a loan to organization F in the amount of 1 million rubles. The loan term is 10 years. At initial recognition, Entity D determined that the loan originated has a 0.5% probability of default within the next 12 months. The probability of default assessment is based on expectations for instruments with similar credit risk (using reasonable and supportable information that is available without undue cost or effort), and also takes into account the borrower's credit risk and economic forecast for the next 12 months. Entity D also determines that changes in the 12-month probability of default are a reasonable approximation of changes in the probability of default over the life of the loan in determining whether there has been a significant increase in credit risk since the initial recognition of the loan.

At the reporting date prior to the maturity date, it was determined that there had been no change in the probability of default (in the next 12 months) since the initial recognition of the loan originated. Entity D therefore determined that credit risk has not increased significantly since initial recognition. In addition, Entity D has determined that 25% of the gross book value of the loan originated could be lost if there were a default.

Therefore, Entity D measures the allowance at an amount equal to 12-month expected credit losses using a 12-month probability of default of 0.5%. As a result, as of the reporting date, the provision for losses for expected credit losses for 12 months is RUB 1,250. (0.5% × 25% × 1 million rubles).

Simplified approach for trade receivables, contract assets and lease receivables

• do not contain a significant financing component in accordance with IFRS 15 [or when the entity applies the practical expedient in paragraph 63 of IFRS 15];
• contain a significant financing component in accordance with IFRS 15 if the entity chooses as its accounting policy to determine the loss allowance in an amount equal to lifetime expected credit losses; This accounting policy must be applied to all such trade receivables or all such contract assets, but may be applied separately to trade receivables and contract assets.

In this case, the organization can choose accounting policies for trade receivables, lease receivables and contract assets independently of each other [p. 5.5.16 IFRS 9].

Example 5
Reserve Matrix
Organization E, which produces building materials, has a portfolio of trade receivables totaling RUB 30 million. Organization E sells building materials only in the Moscow region; its extensive customer base consists of small businesses and individuals. Accounts receivable from customers are classified according to general risk characteristics that characterize the ability of customers to pay all amounts due in accordance with the terms of the contracts.

Trade receivables do not have a significant financing component. And in accordance with paragraph 5.5.15 of IFRS 9, the provision for such trade receivables is always measured in an amount equal to expected credit losses for the entire life of the financial asset.

To determine the expected credit losses for the trade receivables portfolio, Entity E uses an allowance matrix that is based on historical observed default rates over the expected life of the trade receivables and adjusted by forward estimates. At each reporting date, historical observed default rates are updated and changes in forward estimates are analyzed. In this case, economic deterioration is predicted
conditions over the next year.

Taking into account the above, Entity E has compiled the following reserve matrix:

Purchased or originated credit-impaired financial assets

• significant financial difficulties of the debtor;
• violation of the terms of the contract (default or late payment);
• granting to a debtor concessions for economic reasons or contractual terms related to the financial difficulties of such debtor that would not have been granted otherwise;
• increasing the likelihood of bankruptcy or other financial reorganization of the debtor;
• the disappearance of an active market for a given financial asset as a result of financial difficulties;
• the purchase or creation of a financial asset at a deep discount that reflects the credit losses incurred.

IFRS 9 sets out special rules regarding the accounting for impairment of credit-impaired assets. Thus, at the reporting date, an organization must recognize as an allowance for losses on acquired or originated credit-impaired financial assets only changes in lifetime expected credit losses that have accumulated since initial recognition [p. 5.5.13 IFRS 9].

For credit-impaired assets, an entity must recognize in profit or loss at each reporting date the amount of the change in lifetime expected credit losses. However, it should recognize favorable changes in lifetime expected credit losses as an impairment gain, even if the lifetime expected credit losses are less than the expected credit losses that were included in the estimated cash flows at initial recognition [para. 5.5.14 IFRS 9].

The basic rules of the new impairment accounting model can be formulated as follows.

If, at the reporting date, there has been no significant increase in the credit risk of a financial instrument since initial recognition, the entity shall determine the loss allowance for that financial instrument in an amount equal to 12-month expected credit losses [para. 5.5.5 IFRS 9]. But if the credit risk of a financial instrument has increased significantly since initial recognition, the loss allowance should be determined at the amount of expected credit losses over the entire expected life of the financial asset [para. 5.5.3 IFRS 9]. However, in future periods, the credit risk on financial instruments may decrease significantly, and then there will be no reason to assert that credit risk has increased significantly since the date of initial recognition of the financial instrument. In this case, at the relevant reporting date, the entity will determine the allowance in an amount equal to 12-month expected credit losses [p. 5.5.7 IFRS 9].

Determining a Significant Increase in Credit Risk

It should also be borne in mind that an entity may use the assumption that the credit risk of a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk at the reporting date [para. 5.5.10 IFRS 9].

When assessing the significance of the increase in credit risk on a financial asset, you need to remember the following rules.

In accordance with paragraph 5.5.11 of IFRS 9, if reasonable and supportable forward-looking information is available without undue cost or effort, past due payment information alone cannot be relied upon in determining whether credit risk has increased significantly since initial recognition. However, when information that is more predictive than delinquency status (whether on an individual or group basis) is not available without undue cost or effort, an entity may use delinquency information in determining whether credit risk has increased since initial recognition. However, regardless of how an entity assesses a significant increase in credit risk since initial recognition, if contractual payments are more than 30 days past due, a rebuttable presumption is applied that the credit risk of the financial asset has increased significantly since initial recognition. This presumption can be rebutted if there is reasonable and supportable information available without undue cost or effort that shows that credit risk has not increased significantly since initial recognition, even though contractual payments are more than 30 days past due. But if an entity determines that credit risk increased significantly before contractual payments were more than 30 days past due, this rebuttable presumption does not apply.

Example 6
Significant increase in credit risk
Bank A provided a loan to organization B. By providing the loan, the bank expected that organization B would comply with all the terms of the loan agreement during the entire term of the loan. In addition, it was assumed that revenue and cash flows would be stable for all enterprises in the industry to which organization B belongs.

On initial recognition of the loan, Bank A considered that the loan should not be recognized as a credit-impaired financial asset because it did not meet the definition of such an asset in Appendix A to IFRS 9.

Following the initial recognition of the loan origination, macroeconomic changes had a negative impact on overall sales. Entity B's actual revenue and actual net cash flow were less than planned. At the same time, reserves increased. In need of financing, the organization borrowed more money under a separate revolving credit line agreement, thereby increasing its financial leverage ratio. As a result, organization B was close to violating its obligations under the loan received from bank A.

At the reporting date, Bank A makes an overall assessment of the credit risk of the loan to Entity B, taking into account all reasonable and supportable information available without undue cost or effort that is appropriate to determine the extent of the increase in credit risk. When assessing the degree of increase in credit risk, Bank A takes into account the following factors:

• deterioration of macroeconomic conditions may continue in the near future, which is expected to have a further negative impact on Entity B's ability to generate cash flows and repay long-term loans;
• Entity B is close to breaching covenants, which may result in the need to restructure the loan or revise the covenants;
• Entity B's bond prices have fallen, reflecting an increase in credit risk, and this cannot be explained by changes in the capital market (in particular, interest rates have remained unchanged);
• Bank A has reassessed its internal assessment of loan risk based on information available to it to reflect the increase in credit risk.

Bank A has determined that there has been a significant increase in credit risk since the initial recognition of the loan to Entity B.

Bank A therefore recognizes expected credit losses over the life of the loan agreement. And even if he had not changed his internal assessment of credit risk, this would not have influenced the decision to significantly increase credit risk. After all, the absence or presence of a change in the internal risk assessment does not in itself affect the decision on the extent to which credit risk has increased since initial recognition. It should also be noted that the presence of collateral on a loan affects the loss that will be realized in the event of default, but does not affect the risk of default. Therefore, the presence of loan collateral is not taken into account in determining whether there has been a significant increase in credit risk since initial recognition.

Modified financial assets

1. assessment of the risk of default as of the reporting date (based on modified contractual terms);
2. assessing the risk of default upon initial recognition (based on the original unmodified contractual terms) [p. 5.5.12 IFRS 9].

Estimation of expected credit losses

• an unbiased, probability-weighted amount determined by assessing the range of possible outcomes;
• time value of money;
• reasonable and supportable information about past events, current conditions and projected future economic conditions that is available at the reporting date without undue cost or effort.

The maximum period considered in measuring expected credit losses is the maximum contractual period (including extension options) over which the entity is exposed to credit risk, not a longer period, even if consistent with business practice [para. 5.5.19 IFRS 9].

However, some financial instruments contain both a loan and an undrawn commitment component, and an entity's contractual ability to call for repayment of a loan and cancel the undrawn commitment component does not limit the entity's exposure to credit losses to the contractual notice period. For such financial instruments only, an entity must estimate expected credit losses for the entire period during which it is exposed to credit risk, and the expected credit losses will not be reduced as a result of the entity's credit risk management activities, even if such period exceeds the maximum contractual period. . 5.5.20 IFRS 9].

On initial application of IFRS 9, the impairment requirements must be applied retrospectively in accordance with IAS 8 [para. 7.2.17 IFRS 9]. However, at the date of initial application of IFRS 9, it is necessary to use reasonable and supportable information (available without undue cost or effort) to determine the credit risk of a financial instrument at the date of initial recognition. This credit risk at the date of initial recognition should be compared with the credit risk at the date of initial application of IFRS 9 [para. 7.2.18 IFRS 9].

In determining whether there has been a significant increase in credit risk since the initial recognition of a financial asset, an entity may apply:

• requirements provided for in paragraphs. 5.5.10 and B5.5.22-B5.5.24 IFRS 9;
• rebuttable presumption required by clause 5.5.11 of IFRS 9 for contractual payments that are more than 30 days overdue if the entity will apply impairment requirements to those financial instruments by identifying a significant increase in credit risk from the moment of their initial recognition based on information about late payments [p. 7.2.19 IFRS 9].

All of the above makes it clear that IFRS practitioners will have a lot of work to do both when initially applying IFRS 9 and subsequently when preparing financial statements in future periods. After all, the new standard for financial instruments requires the formation of impairment reserves for almost all debt financial assets. This means that there will be more work on the formation and restoration of reserves for the depreciation of receivables, loans issued and other debt financial assets. In addition, in many cases, entities will recognize more losses due to the application of the new rules for accounting for impairment losses set out in IFRS 9. It is therefore advisable to understand in advance what the consequences of applying IFRS 9 will be and to prepare for it. new to take into account the depreciation of financial assets.

In the context of the global financial and economic crisis, partly associated precisely with the accumulation of excessive debt by the private sector, especially financial institutions, there was a replacement of private debt (mainly banks) with public debt.

In Fig. Figure 3.8 clearly shows how in 2008 there was a reduction in the debt of financial institutions while a simultaneous increase in government debt occurred. During a crisis, the volume of loans to the private sector is sharply reduced; trust is retained only in the securities of the state, which is able to raise funds on the market. In the current crisis in many countries of the world, the state (ministries of finance, central banks) actually took on the debts of individual systemic institutions, providing resources in exchange for part of their share capital. Private sector assistance programs amount to trillions of dollars (hundreds of billions in the US alone).

In the early 2000s. the ratio of gross (gross) and net public debt to GDP in the USA, Germany, France, and Great Britain was in the range of 40-60% and was constantly growing (Fig. 3.9 and 3.10).

The US public debt by 2010, in relative terms, is twice as large as it was in the late 1990s. Does this debt threaten the economic security of the United States and the world? The colossal US budget deficit ($1.4 trillion in fiscal year 2009, approximately equal to Russia's annual GDP) is so far financed quite easily at low interest rates. Demand for US government bonds remains at a high level and all bond auctions are successful. All types of government bonds (short-, medium- and long-term, Table 3.7) are in demand by investors both in the United States and abroad. Over 10 years, the share of foreign holders of US government debt increased from 30 to 50% (Figure 3.11).

The largest holders of US treasury bonds are the central banks of China and Japan. Russia was also included in the list of holders of large blocks of bonds (Table 3.8).

In conditions of huge public debt, the government, when the possibilities for financing the budget deficit change (increasing the interest rate), may be tempted to solve the problem through inflationary depreciation of the debt. And this means, given the accumulated dollar assets, colossal losses for investors in other countries, i.e. for the global economy.

The fact that the size of the US government debt is equal to its GDP gives rise to some concerns. There was a period in American history when the national debt even exceeded GDP: during World War II it was 120% of GDP. By the mid-1970s. it dropped to 30% of GDP. However, it is necessary to keep in mind the significantly higher growth potential of the American economy in the post-war period. In addition, part of the reduction was due to inflation, which in the late 1940s, early 1950s and 1970s. exceeded double digits.

So there are certainly reasons for concern regarding the US budget deficit and public debt. We must also not forget the colossal debt accumulated by state governments as a result of their municipal bond issues. As noted above, the total amount of this debt was $2.8 trillion in December 2009, which was 19% of GDP. In particular, in 2005, the California debt crisis received widespread attention.

In general, in the global economy, the share of government debt in the debt market (domestic debt) is approximately 50%. By the end of the 1990s. it dropped to 45%, but by 2009 it had risen to 53%.

The rest falls on the companies. As noted above, the BIS distinguishes two groups of companies: financial and non-financial. The first finding, which seems surprising, is that the bulk of debt instruments are issued by financial institutions, and the share of non-financial companies is relatively small: 11-14% of domestic debt securities over the past 30 years, with no trend to change one way or the other side.

However, the ratio between financial and non-financial issuers differs markedly in different countries. The share of non-financial companies among bond issuers is highest in the USA, Japan, England and France, and low in Germany and Italy. In Germany, the needs for long-term capital of non-financial companies are satisfied through bank loans, the sources of which are largely the resources raised by banks through the issuance of bonds.

The structure of issuers in emerging market countries differs more significantly. In this group there are countries in which almost all securities are issued by the state (Poland, Turkey), and at the same time there are a number of countries where private institutions predominate as issuers (this is typical for Asian “newly industrialized” countries).

The debt on securities placed on the international capital market grew at the fastest pace. As noted above, existing statistics and issuance practice, depending on the location of the loans, distinguishes two categories of debt securities (domestic and international). In the early 1990s. the share of domestic debt securities was approximately 90%, international securities – 10%. However, by 2009 the share of the latter increased to 30%.

International securities are those that are placed on a foreign market for a given issuer. Most of these securities fall under the definition of “international bonds,” which include Eurobonds and foreign bonds. Today, the main array (more than 90% by value) of international bonds is represented by Eurobonds.

The rapid growth of international borrowing reflects the growing internationalization of world capital markets and is an objective process, but not a linear one. In the context of the global financial and economic crisis of 2007-2009. The international bond market contracted in volume in 2008 for the first time in several decades (Figure 3.12). Evidence of overcoming the crisis was the restoration of its pre-crisis dimensions in 2009.

The bulk of borrowing on the international market comes from financial institutions (approximately 80%). True, in this case, given that the situation in the global financial market is determined by developed countries, this figure reflects the structure of borrowing in this group. Among emerging markets, the situation may be very different. Here the state is often the main issuer. This, for example, was the case in Russia until the beginning of the current decade (currently the main borrowers are companies, although these are predominantly the largest state-controlled companies), this is currently happening in Poland, Hungary, Argentina and many other countries.

The US share of the external debt bond market was 26% in March 2010 and was accounted for almost exclusively by financial and non-financial corporations. As noted above, the American government does not yet make sense to look for money abroad: foreigners themselves willingly come to the United States to participate in auctions for the placement of treasury bonds.

To summarize, it should be emphasized that the importance of the bond market from the point of view of the reproduction process is much higher than the stock market. By issuing bonds, companies attract significantly more resources than by issuing shares. Global financial and economic crisis of 2007-2009. It began precisely as a crisis in the bond market (of a certain type) in the United States, and then it affected all spheres of the economy and financial system.

Individuals, business representatives and even governments use debt instruments to achieve their goals. The reasons may be different - financing purchases, raising capital, obtaining investment income. Debt instruments are a form of relationship between the issuer (creditor) and the recipient of funds. In exchange for the opportunity to immediately receive the required amount, the borrower undertakes to pay the lender a certain remuneration, which will be his income.

Loans as they are

Unlike other lenders, you can take out a loan from a bank to buy a vacuum cleaner or an apartment, pay for education or start a business. Other lenders prefer to occupy one or two niches in the lending sector. So, for example, pawnshops provide exclusively loans secured by property. MFOs specialize in very expensive short-term loans, etc.

As a rule, under the terms of a loan, the borrower has the opportunity to borrow a certain amount from the lender, pledging to repay it over a period of time. At the same time, he will return not only the borrowed amount, but also the interest for its use. Thus, loans among debt instruments are their most popular type.

Bonds as debt instruments

In the case of a business, such transactions are based on confidence in the assets of the issuing company. Typically, companies issue bonds to raise debt capital. And if the hopes of the company's management do not materialize and the company goes bankrupt, the bondholders will have the right to return their investments from the proceeds from the sale of the assets of this company.

Debentures

This type of lending is based only on the agreement and the general reliability of the issuer, and its assets do not act as collateral. However, debt instruments are a sought-after product because they offer investors higher returns, although they carry higher risks. By the way, unlike classic bonds, debt obligations imply a fixed percentage of return. If we recall that many central banks are introducing