The year 2026 brings important updates under the International Financial Reporting Standards (IFRS) that will impact how companies classify financial instruments, recognize payments, and present disclosures. While these amendments are technical in wording, their purpose is practical: to ensure financial statements reflect modern business realities such as digital payment systems and renewable energy contracts, while maintaining consistency and transparency. Businesses, finance teams, and auditors should understand not only what is changing, but also how to account for these changes in practice.

What is Effective in 2026?

The following amendments become effective in 2026:

1. Amendments to IFRS 9 and IFRS 7 – Classification and Measurement of Financial Instruments
2. Amendments to IFRS 9 and IFRS 7 – Contracts Referencing Nature-dependent Electricity
3. Annual Improvements to IFRS Accounting Standards (Volume 11) – affecting IFRS 1, IFRS 7, IFRS 9, IFRS 10 and IAS 7
   
   The following amendments become effective in 2025:
4. Amendments to IAS 21- Lack of exchangeability (effective from FY 2025)

1. Amendments to IFRS 9 and IFRS 7 – Classification and Measurement of Financial Instruments

These amendments clarify how entities assess contractual cash flows when determining the classification of financial assets. Under IFRS 9, financial assets are classified based on the business model (why the asset is held) and whether the contractual cash flows represent solely payments of principal and interest (SPPI test). The 2026 updates refine how certain contractual features are evaluated and also clarify when a financial liability settled through an electronic payment system should be derecognized.

From an accounting perspective, at initial recognition, the entity must carefully review contract terms. If the asset meets the SPPI criteria and is held to collect cash flows, it is measured at amortized cost. If held both to collect and sell, it is measured at fair value through other comprehensive income (FVOCI). If it fails the SPPI test, it is measured at fair value through profit or loss (FVTPL).

In addition, for electronic payments, a financial liability can be derecognized when the payment instruction is irrevocable and the entity has lost control over the cash, even if the counterparty has not yet received the funds.

Example:
A company settles a supplier invoice on 30 March via an electronic bank transfer that cannot be revoked. The supplier receives the funds on 1 April. Under the amended guidance, if the company no longer controls the cash on 30 March and the instruction is irrevocable, the liability is derecognized on 30 March, not 1 April.

2. Amendments to IFRS 9 and IFRS 7 – Contracts Referencing Nature-dependent Electricity

These amendments provide clearer guidance for contracts where cash flows depend on electricity generated from renewable sources such as solar or wind energy. In many modern arrangements, payments are linked to the actual output of a renewable plant, meaning the amount paid or received can fluctuate depending on weather conditions or generation levels. This variability raised questions under IFRS 9 about whether such cash flows still qualify as “solely payments of principal and interest” (SPPI).

The amendment clarifies that variability in cash flows does not automatically fail the SPPI test. The key question is whether the variability reflects risks consistent with a basic lending arrangement — such as credit risk or time value of money — or whether it introduces exposure to risks unrelated to lending, such as commodity price risk or equity-like returns.

From an accounting perspective, entities must first determine whether the contract is within the scope of IFRS 9. If it is a financial asset, the company evaluates the contractual terms carefully. If the variability in payments is structured in a way that still represents compensation for lending (for example, linked to performance measures that reflect operational efficiency rather than market price speculation), the instrument may still qualify for amortized cost or FVOCI measurement. However, if the cash flows are significantly exposed to electricity market price movements or other non-lending risks, the SPPI condition is not met, and the instrument must be measured at FVTPL.

In addition, enhanced disclosures under IFRS 7 are required. Companies must explain the nature of these contracts, the risks arising from variability, and how those risks affect financial performance and cash flows. This improves transparency, especially as sustainability-linked contracts become more common.

Example:
A company provides financing to a solar energy project, where repayments depend partly on the volume of electricity generated. If the repayment structure is designed simply to adjust timing based on output but still represents recovery of principal and interest, it may pass the SPPI test and be measured at amortized cost. However, if repayments fluctuate directly with wholesale electricity market prices, exposing the lender to commodity price risk, the asset would fail SPPI and be measured at FVTPL.

3. Annual Improvements to IFRS Accounting Standards (Volume 11)

The Annual Improvements introduce targeted clarifications to IFRS 1, IFRS 7, IFRS 9, IFRS 10 and IAS 7. These are not major changes but refinements that remove ambiguity, improve wording, and enhance consistency across standards. They may affect areas such as first-time adoption procedures, disclosure requirements, consolidation guidance, and classification of cash flows.

From an accounting standpoint, entities should review the amendments carefully, update accounting policies where required, and ensure financial statement disclosures reflect the clarified guidance.

Example:
A first-time adopter applying IFRS 1 must reassess certain transition exemptions based on the updated clarification. While the overall accounting outcome may remain similar, the presentation and disclosures in the first IFRS financial statements may need adjustment to align with the revised wording.

4. Amendments to IAS 21 – Lack of Exchangeability

The amendments to IAS 21 address situations where a currency cannot be exchanged into another currency at the reporting date. IAS 21 normally requires companies to use the spot exchange rate when translating foreign currency transactions and balances. However, in some countries, due to government restrictions, currency controls, or economic instability, a company may not actually be able to access foreign currency at the official rate.

Before this amendment, there was uncertainty in practice. Some entities used the official exchange rate even when it was not realistically accessible, while others used alternative market rates. The amendment clarifies when a currency should be considered “not exchangeable” and how the exchange rate should be determined in such cases.

Under the revised guidance, a currency is considered not exchangeable when an entity cannot obtain the other currency within a reasonable period and through normal administrative processes at the measurement date. If exchangeability is lacking, the entity must estimate the spot exchange rate that would apply in an orderly transaction between market participants at that date. This estimated rate should reflect economic reality, using observable data where available.

In addition, enhanced disclosures are required. Companies must explain the nature of the currency restrictions, how the estimated rate was determined, the balances affected, and the impact on financial performance and financial position. This ensures transparency where significant judgment is involved.

Example:
A company operates in a country where the official exchange rate is 10 local currency units to 1 USD. However, due to foreign exchange controls, the company cannot obtain USD at this official rate and must access foreign currency through legal alternative channels at an effective rate of 18 to 1.

If the company concludes that the currency is not exchangeable at the official rate, it cannot simply use 10:1 for translation. Instead, it must estimate the rate that reflects an orderly transaction between market participants – likely closer to 18:1 – and use that rate to translate its foreign currency balances. The company must also disclose the judgment applied and explain how the restriction affects its financial statements.

The 2026 IFRS amendments reinforce accurate classification, timely derecognition, and enhanced transparency. Companies should perform an impact assessment, review contracts and payment systems, and update documentation and disclosures accordingly. By understanding these changes early, businesses can ensure smooth implementation and continued compliance with evolving IFRS requirements.