The International Accounting Standards Board (IASB) issued IFRS 9 "Financial Instruments" in 2003. IFRS 9 re-classifies, measures and reduces financial assets. In view of the major changes in the guidelines, the Securities and Exchange Bureau required listed, listed and publicly issued companies to conduct a trial evaluation on the impact of the application of IFRS 9 in 2005, and issued a letter of approval  in July, 106, formally announcing that China would apply IFRS 9 from January 1, 107. The application of this large standard covers the scope of many important items in the balance sheet and the comprehensive income statement, and it is self-evident that the financial report of 107 has a significant impact. The changes that may result from the major provisions and practical application of IFRS 9 are described below.Introduction of IFRS 9The standard content of IFRS 9 covers the life of financial instruments, the recognition and classification of financial instruments when they are "acquired" from enterprises, the measurement of "holding period", impairment assessment and hedging operations, and the exclusion of financial instruments when they are "finally" disposition. IFRS 9 will bring about significant changes in the classification and measurement of financial assets and the impairment of financial assets compared with the current treatment, including the International Accounting Standards No. 39 "Financial Instruments: Recognition and Measurement" (IAS 39, 2013) and industry-specific financial statement preparation standards.In terms of the classification and measurement of financial assets, IFRS 9 stipulates that enterprises should consider two tests simultaneously: (1) "Contract Cash Flow Test" - to assess whether the contract cash flow generated by financial assets is fully paid for the principal and interest on the outstanding principal amount; and (2) "Business Model Test" - to assess the business model of managing financial assets in order to determine the appropriate way to measure financial assets. If an enterprise invests in a pure debt instrument that only generates cash flow of principal and interest, it shall be measured at its fair value (the change of fair value is recognized as profit and loss or other comprehensive profit and loss) or amortized cost according to its investment purpose (i.e. the management business model). For other non-pure debt instrument investments (such as stocks, convertible corporate bonds), the fair value measurement is adopted comprehensively and the change of fair value is recognized as the profit and loss. Only the equity instrument investments that are not held for trading (such as common stock) can choose to designate the change of fair value as the other comprehensive profit and loss.In terms of impairment assessment of financial assets, IFRS 9 no longer requires impairment assessment of stock investments. But required for amortization cost measure (such as accounts receivable, lease accounts receivable) and other comprehensive income through measured at fair value, the pure debt instruments of investment (such as government bonds or corporate bonds), in accordance with the contract of IFRS 15 recognized assets, and did not enter an item in an account of an irrevocable loan commitment and financial guarantee contract, must be in accordance with the "expected credit loss model" to evaluate impairment.Let's start with a simple metaphor to illustrate the concept of the "expected credit loss pattern." Imagine you are holding an apple in front of a large fan that is spinning at high speed. Then you raise your hand and forcefully throw the apple toward the fan. It is not hard to imagine that in a few more seconds the apple will hit the fan and be cut into countless pieces. However, under the current "incurred loss model" of IAS 39, the impairment is required to wait until "objective evidence of impairment" emerges (such as when a debtor announces a financial distress restructuring, in this case the moment Apple touches a fan), even if Apple's future is already foreseen. It is clear that the recognition of impairment losses under IAS 39 "Loss Induced Model" is too late. In order to improve this shortcoming, IFRS 9 "Expectant Credit Loss Model" is changed to require recognition of impairment losses reflecting the amount that may not be recovered in the future, taking into account the expected future recovery of claims (including the expected future industry or overall economic development).The first stage is when the financial assets have just been purchased (unless the purchase is a financial asset that has already suffered credit impairment). In the first stage, the enterprise only needs to identify the amount that may be in default within the next 12 months, which may result in the unrecoverable amount during the whole existence period, without taking into account the possible default after the next 12 months. However, once the credit risk of the financial asset is significantly increased subsequently (for example, the external credit rating of the corporate bond issuer is significantly reduced or the payment is not made 30 days after the repayment period), in order to reflect the increased risk in the financial statements, the enterprise shall recognize all the expected credit losses during the life of the financial asset instead. Taking the 5-year common corporate bond as an example, the expected credit loss that a firm should recognize when it first buys the bond only takes into account the probability of default in the first year. Assuming that credit risk increases significantly at the end of the second year, the expected credit loss that a firm should recognize should take into account the probability of default in the remaining three years before maturity. In addition, if the condition of financial assets further deteriorates to the point where a credit impairment actually occurs (for example, the debtor fails to repay the loan 90 days after the due date), in addition to the continued recognition of the expected credit loss during the existing period, the recognition of interest income should also exclude the amount related to the expected credit loss.