Account Classification Rules

Financial instruments are required to be classified into three categories and thereby accounted for as suggested in the Phase 1 section of the IFRS 9 guidelines. The three categories are the following:

• Amortized Cost (AMRTCOST)
• Fair Value through Other Comprehensive Income (FVOCI)
• Fair Value through Profit and Loss (FVTPL)

Financial assets must undergo the Business Model test (BM) and Cash Flow Characteristics test (SPPI) and Financial Liabilities must undergo the Business Model Test for classification in the aforementioned categories. While defining the Account classification rules, the user needs to first select the folder and then the modelling set. Account classification Rules can be customized based on Product and Customer type levels.

Account Classification based on Business Model and SPPI:

Once the Business Model test or Cash Flow Characteristics test is performed, the classification method needs to be assigned, depending on the outcome of the test. As the first step, accounts that have been assigned the classification through staging or based on election, retain that classification.

Table 4-43 Account Classification for Assets

Business Model	SPPI Test	Classification
Held to Collect	Y	AMRTCOST
Held to Collect and Sell	Y	FVOCI
Held to Sell	Y	FVTPL
Held to Collect	N	FVTPL
Held to Collect and Sell	N	FVTPL
Held to Sell	N	FVTPL

Account Classification for Liabilities:

Business Model	Classification
Held to Maturity	AMRTCOST
Available for Sale	FVTPL
Held to Sell	FVTPL

The final process is to optionally select the accounts to be classified under FVTPL or FVOCI. This is done based on the following Rules:

1. Fair Value option: If the fair value flag is Y, then Classification = FVTPL
2. Equity Instruments: For Instrument Type = Equities and Business Model = Held to Collect, then Classification = FVOCI.

Users can configure the Rules as per the requirement.