Amendments to the financial instruments standards take effect for financial years beginning on or after 1 January 2026, so they apply to many companies’ FY2026 financial statements. Issued by the Accounting Standards Committee (ASC) in October 2024 as Amendments to the Classification and Measurement of Financial Instruments, they amend FRS 109 and FRS 107 (and SFRS(I) 9 and SFRS(I) 7 for listed entities), mirroring the IASB’s changes to IFRS 9 and IFRS 7.
1. When Is a Payment Derecognised?
The amendments clarify that financial assets and liabilities are derecognised on the settlement date, that is, when the cash is actually received or paid.
There is an optional exception for payments made through an electronic payment system. A company may derecognise a trade payable before the cash leaves its account if all of these conditions are met:
- it has no practical ability to withdraw, stop or cancel the payment instruction;
- it has no practical ability to access the cash to be used for settlement; and
- the settlement risk is insignificant.
If chosen, the policy must be applied to all payments made through the same payment system.
Example
A company instructs its bank on 31 December 2026 to pay a supplier S$50,000. The funds leave its account on 2 January 2027.
- Default rule: both the payable and the cash remain on the 31 December 2026 balance sheet.
- With the electronic payment election (if all three conditions are met): both the payable and the cash are removed on 31 December 2026.
Year-end cut-off for payments therefore needs careful review.
2. ESG-Linked and Other Contingent Features
Many loans now carry interest rates that change if the borrower meets sustainability (ESG) targets. The amendments clarify how to assess whether such loans pass the “solely payments of principal and interest” test, so that qualifying loans can continue to be measured at amortised cost rather than fair value. The amendments also clarify the treatment of non-recourse loans and contractually linked instruments.
3. New Disclosures
- For equity investments designated at fair value through other comprehensive income: fair value gains or losses split between investments sold during the year and those still held.
- For financial instruments with contingent features (such as ESG-linked terms): a description of the contingent event, the possible range of changes to cash flows, and the carrying amounts affected.
Transition
The amendments apply retrospectively, but comparative figures do not need to be restated. Any cumulative effect is adjusted against opening balances at the date of initial application.
What You Should Do Now
- Review how payments made around the year-end are recorded, and decide whether to adopt the electronic payment election for each payment system.
- Review the terms of any sustainability-linked or other loans with contingent interest features.
- Update accounting policies and disclosures in your FY2026 financial statements.
How We Can Help You
We can review your payment processes and loan agreements, assess the impact of the amendments, and update your FY2026 financial statements. Contact us to arrange a discussion.