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IASB issues final IAS 39 fair value option amendment

16 Jun 2005

The IASB has amended IAS 39 'Financial Instruments: Recognition and Measurement' to restrict the use of the option to designate any financial asset or any financial liability to be measured at fair value through profit and loss (the 'fair value option').

The IASB developed this amendment after commentators, particularly prudential supervisors of banks, securities companies, and insurers, raised concerns that the fair value option contained in the 2003 revisions of IAS 39 might be used inappropriately. The new revisions limit the use of the option to those financial instruments that meet certain conditions. Those conditions are that:
  • the fair value option designation eliminates or significantly reduces an accounting mismatch
  • a group of financial assets, financial liabilities, or both are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy,
  • an instrument contains an embedded derivative that meets particular conditions.
The amendment is effective 1 January 2006, with earlier application encouraged. Click for Press Release (PDF 55k).