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.

Read also: Ind AS 2025: Guide for CA Students & Finance Professionals

What Are IND AS 109 & 107?

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 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, NEFT
• Guidance 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

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.