Master IND AS 109 & 107: Key Concepts & 2025 NFRA Changes
Introduction to IND AS 109 & 107
Understanding financial instruments under Indian Accounting Standards (Ind AS) is crucial for CA students, auditors, and finance professionals. Two standards—Ind AS 109 (Financial Instruments) and Ind AS 107 (Disclosures)—are central to proper financial reporting and audit readiness. With the NFRA approving key amendments to Ind AS 109 effective April 1, 2026, it’s the right time to update your knowledge base.
This guide simplifies the complex into exam-ready insights, practical examples, and current developments—all with clarity and precision.
What Are IND AS 109 & 107? (Quick Definitions)
Ind AS 109 governs the recognition, classification, measurement, and derecognition of financial instruments. It also outlines how to assess impairment using the Expected Credit Loss (ECL) model.
Ind AS 107 complements it by prescribing disclosure requirements related to the nature, risk, and significance of financial instruments. It helps users of financial statements understand exposure to financial risks.
In short:
Ind AS 109 = Accounting Treatment
Ind AS 107 = Disclosure Requirements
Key Provisions of IND AS 109
1. Classification & Measurement
Financial assets are classified based on:
Business model (why the asset is held), and
Contractual cash flow characteristics
The three main categories are:
Amortised Cost – if held to collect contractual cash flows (e.g., loan receivables)
Fair Value Through Other Comprehensive Income (FVOCI) – if held to collect and sell
Fair Value Through Profit or Loss (FVTPL) – all others, including derivatives
2. Impairment – Expected Credit Loss (ECL) Model
Unlike the incurred loss model under Indian GAAP, Ind AS 109 introduces a forward-looking ECL model. This requires estimating credit losses based on past events, current conditions, and future outlook.
It applies to:
Trade receivables
Loans
Debt securities not at FVTPL
3. Derecognition and Financial Guarantees
Assets are derecognized when contractual rights expire or are transferred. Special treatment applies to:
Securitisation
Electronic payment clearing (important under the 2025 amendment)
Financial guarantee contracts – measured at fair value, and reassessed subsequently
Disclosure Essentials of IND AS 107
The purpose of Ind AS 107 is to help financial statement users:
Understand the significance of financial instruments on financial position
Evaluate risks (credit, liquidity, market)
Assess the entity’s risk management strategies
Key Disclosure Areas:
Quantitative data: e.g., maturity analysis, interest rate sensitivity
Qualitative info: risk exposures, objectives, policies
Fair value hierarchy: Level 1, 2, and 3 inputs
Offsetting disclosures: when financial assets/liabilities are netted
NFRA‑Approved Amendments for IND AS 109 (2025)
In August 2024, the NFRA approved significant changes to Ind AS 109, slated for implementation from April 1, 2026. These aim to align with international practices and improve financial reporting reliability.
Highlights:
Clarity on derecognition for electronic payments
e.g., automatic clearing systems like UPI, NEFTGuidance on reclassification of financial assets due to changes in business model
Updated provisions around modified financial assets
These amendments make the standard more robust and adaptable to digital banking systems and evolving financial landscapes.
Exam Tips & Sample Application
Preparing for your CA Inter or Final exams? Here’s how to master Ind AS 109 & 107:
Key Points to Remember:
Ind AS 109 = Think “classification & measurement”
Three categories: Amortised Cost, FVOCI, FVTPL
ECL = Probable future loss, not just past default
Disclosures = Risk, Fair Value, and Significance
Sample Case:
A company invests ₹10 lakh in bonds. Initially, it plans to hold them till maturity, but due to market changes, sells 60% within a year.
Treatment:
Originally classified as amortised cost.
On change in business model → reclassification to FVOCI or FVTPL with disclosure.
Quick Reference Checklist
| Question | Answer |
|---|---|
| How many classification categories in Ind AS 109? | Three – Amortised Cost, FVOCI, FVTPL |
| What is ECL? | Expected Credit Loss – estimates future credit losses |
| Scope of Ind AS 107? | Disclosures on risk, nature, and significance of financial instruments |
| When to derecognize a financial asset? | When rights expire or transfer without retention of control |
| NFRA 2025 update effective from? | April 1, 2026 |
Conclusion
Understanding Ind AS 109 and 107 is no longer optional—it’s essential for clear financial reporting and CA exam success. With the NFRA-approved changes taking effect from 2026, staying updated gives you an edge, whether you’re appearing for exams, auditing accounts, or drafting financial statements.