Equity Financial Instruments: Use, Determinants and Usefulness from IAS 39 to IFRS 9

Abstract

Purpose This study is motivated by changes to the accounting for equity financial instruments (EFAs) under International Financial Reporting Standard (IFRS) 9 Financial Instruments. This study aims to improve understanding of firms’ EFA usage, classification choices and the value relevance of EFA information before and after IFRS 9.

Design/methodology/approach Using a sample of Australian Securities Exchange 500 firms, including financial and non-financial firms, the authors examine the use of EFA, its classification determinants and usefulness using descriptive statistics, logit models and value relevance models.

Findings The authors find no change in the frequency of EFA after IFRS 9, differing from evidence in other jurisdictions. The determinants appear to have changed from being driven by the impact on earnings, indicative of an opportunistic motivation, to the size of the EFA post-IFRS 9 in non-financial firms. There is no change in the value relevance of the EFA amount post-IFRS 9.

Practical implications This study contributes to the International Accounting Standard Board’s understanding of the implementation of IFRS 9. Specifically, the authors add to the debate on whether to recycle fair value gains or losses on EFAs by showing that there is no impact on firms’ use of EFA in practice.

Originality/value To the best of the authors’ knowledge, this study is one of the first to examine accounting choices and the usefulness of accounting information for EFAs in both financial and non-financial firms in the context of the standard change.