Classifying a client's financial assets under IFRS 9

How IFRS 9's two tests sort a client's receivables, loans and investments into amortised cost, fair value through OCI or fair value through profit or loss.

By Achekam · 11 October 2026 · 5 min read · For Accountants & audit firms in South Africa, Nigeria, Kenya

A typical owner-managed client holds more financial assets than its directors realise. There are the trade receivables, of course, but also a loan to the managing director's other company, a money market fund where surplus cash sits between tax payments, some listed shares inherited from a former shareholder, and perhaps government treasury bills bought through the bank. Each one needs a classification under IFRS 9, and the classification decides how it is measured and where its gains and losses appear.

For most small clients the answer will be uneventful. The value of working through it is catching the one or two holdings that do not belong where the trial balance puts them. This article covers clients reporting under full IFRS; clients on IFRS for SMEs follow that standard's own sections instead.

Two tests: business model and contractual cash flows

IFRS 9, effective for annual periods beginning on or after 1 January 2018, specifies how an entity classifies and measures financial assets, financial liabilities and some contracts to buy or sell non-financial items. Under IFRS 9, when an entity first recognises a financial asset, it classifies it based on two things: the entity's business model for managing the asset, and the asset's contractual cash flow characteristics.

The two tests answer different questions:

• The business model test asks what the client is trying to do with the asset. Collect the cash it pays? Collect and sometimes sell? Trade it?
• The cash flow test asks what the contract itself promises. Does it give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding?

The business model is judged by how the client actually manages its assets, not by a statement of intention written for the file. IFRS 9 also states that when, and only when, an entity changes its business model for managing financial assets, it must reclassify all the affected assets. Classification is not something to revisit casually each year.

Amortised cost for hold-to-collect assets

Under IFRS 9, a financial asset is measured at amortised cost if two conditions are both met. It is held within a business model whose objective is to hold assets in order to collect contractual cash flows. And its contractual terms give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Most small-company financial assets fit here. Trade receivables are held to collect what customers owe. A properly documented loan to a related company, with a repayment schedule and interest, is held to collect principal and interest. Deposits with a bank on fixed terms usually qualify too.

Fair value through OCI and through profit or loss

IFRS 9 classifies and measures financial assets at fair value through other comprehensive income if they are held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. In a small company that might be a portfolio of bonds or treasury bills that the finance director holds for the interest but sells whenever cash is needed for a large purchase.

Everything else goes to fair value through profit or loss: IFRS 9 states that any financial assets not held in the amortised cost or the fair value through OCI business models are measured at fair value through profit or loss. That includes assets bought to trade and assets whose contractual cash flows are not solely principal and interest.

Choosing fair value through OCI brings a second presentation question, because those gains and losses appear in other comprehensive income rather than profit or loss; see other comprehensive income: one statement or two.

Typical small-company holdings and where they land

Treat the last column as a starting point to test, not a conclusion to copy. A loan to a director with no terms, repayable whenever the director chooses and carrying no interest, raises its own measurement questions on day one; measuring a loan or investment when first recognised deals with those. The expected credit loss on receivables is a separate exercise again, covered in trade receivables impairment.

Statement lines and policy wording in the Studio

Classification only helps the reader if the statements show it. In Achekam, a firm can add its own statement lines and groups and change the wording of any row title, and later builds keep those choices. A client with investments in more than one category might, for instance, show "Investments at fair value through profit or loss" as its own line rather than leaving everything under a general investments heading. Each custom line still totals into a standard line, so the notes and cash flow remain consistent.

On policies, the Studio's standard wording is based on IFRS for SMEs and is labelled for review before issue. A full IFRS client applying IFRS 9 needs its own policy, which staff can write: one paragraph per category the client actually uses, naming the assets in it and how they are measured. Delete categories the client does not use; a policy describing fair value through OCI for a client with nothing in it is noise. Notes take their figures from the mapped trial balance, so map each holding to the line that matches its classification before the notes are reviewed.

The IFRS Foundation's IFRS 9 page summarises how the standard requires financial assets and liabilities to be recognised, classified and measured. Read it with the client's list of holdings open beside it, and record the two tests for each holding in the working papers.

General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.