The International Accounting Standards Board has received positive reviews for the first part of its overhaul of the rules covering financial instruments, the classification and measurement of financial assets, which was released last Thursday. But its critics are already giving it a hard time over stage two, an exposure draft of new impairment rules, which was released earlier this month.The IASB is replacing IAS 39, which has been the standard for financial instruments since 1999, with IFRS 9, which it hopes will provide a more streamlined approach to classification and make it easier for users of financial statements to assess the amounts, timing and uncertainty of cash flows arising from financial assets.Critics say IAS 39 was too complex and riddled with exceptions. What they like about part one of IFRS 9 is that it reduces the number of classifications of financial assets from four to two and applies a coherent business model test. The classifications are amortised cost and fair value.IFRS achieves this objective by aligning the measurement of financial assets with the way the entity manages its financial assets (its business model) and with their contractual cash flow nature.The entity's business model is to be considered first and the contractual cash flow characteristics should be considered only for assets that are eligible to be measured at amortised cost.If an entity's objective is to collect contractual cash flows from a financial asset it will be measured at amortised cost.Banking industry consultant Andrew Reynolds commented on his Ozrisk blog last week: "This is a very sensible, commonsense outcome. Basing it around the business model is a good idea."The new standard will be available for use by companies producing December 2009 financial year financial statements and will be mandatory from 2013.A significant departure from the IASB's exposure draft on the standard is that liabilities have not been included. The new standard covers only the measurement of financial assets. Speaking on a webcast from London on Thursday night, IASB director of capital markets Gavin Francis said: "The board wanted more time to address the issue of profit and loss volatility produced by own credit before producing a standard on liabilities."Reynolds was less in praise of the aspect of the new standard. "I am not sure how they can claim to have completed the first phase when they have dropped part of it."A big question for financial institutions is whether the move from four classifications to two will result in more assets being measured at amortised cost or fair value.  In a feedback statement issued with part one of IFRS 9, the IASB said some respondents to the exposure draft had criticised the two-classification approach because it would lead to more assets being measured at fair value.The chair of KPMG's regional financial instruments team, Patricia Stebbens, said that was a concern for local institutions but the jury was still out.  She said: "We have had this discussion internally and no one has a strong view."