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Financial Instruments: Classification and Measurement

Date recorded:

Disclosures for liabilities designated under the fair value option

The IASB discussed additional disclosures related to financial liabilities designated under the fair value option. The Board decided to require disclosure of how much of the accumulated OCI balance attributable to changes in own credit risk was realised during the current period.

The Board also discussed the issue whether and when the realised portion of the accumulated balance attributable to changes in own credit risk could/should be transferred within equity. There were different views expressed. Although the Board clearly favoured the transfer of realised accumulated OCI balance attributable to changes in own credit risk to retained earnings, no decision was taken as there might be different legal requirements in various jurisdictions on what represent retained earnings and how distributable earnings might be defined. The Board agreed with a level of flexibility on transfer of accumulated OCI balance to retained earnings (similar to guidance in IFRS 9 Financial Instruments for the gains/losses on equity instruments recognised in OCI).

Exposure logistics

The Board gave the staff the permission to proceed with drafting of the exposure draft that should be published in May 2010. No Board member indicated his/her dissent.

The Board decided to include in the exposure draft only the changes proposed to the fair value option. In order to mitigate the concerns indicated by some Board members the Board decided to draw the attention of constituents in the introduction of the ED to the fact that the only other change to the financial liabilities guidance relates to elimination of the cost exception for derivative financial liabilities over unquoted equity instruments. That change was exposed in the ED/2009/07 Financial Instruments: Classification and Measurement and deliberated together with guidance included in IFRS 9.

The staff clarified that the ED would be a standalone document, and after re-deliberations of the comments staff plans to include the whole financial liabilities guidance (the relevant guidance from IAS 39 Financial Instruments: Recognition and Measurement, guidance on elimination of cost exemption, as well as guidance related to fair value option related to own credit risk) in IFRS 9 and to delete the relevant sections of IAS 39.

The Board agreed with a 60-day comment period.

Finally, the Board decided to ask a question in the exposure draft on the proposal that if an entity decides to adopt early any finalised requirements in the IAS 39 replacement project, the entity must also adopt any preceding finalised guidance. This proposal was deliberated in the context of finalisation of IFRS 9 but was not yet exposed for public comments.

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