Financial Instruments: Recognition and Measurement
Fair value impairment method
The staff summarised from their paper the key points to consider in relation to a fair value based impairment model. They then put forward to the Board a version of such a model, not recommended by the staff but for discussion purposes only. Under this version an impairment is recognised if the fair value of the instrument is below its amortised cost. As long as fair value is below amortised cost the financial asset is measured at fair value. Once fair value is equal to or above amortised cost the asset is once again measured at amortised cost.
One Board member raised the point that such an approach would require the simultaneous tacking of amortised cost and fair value. The staff highlighted that this was currently required for certain impaired debt instruments classified as available for sale.