Recycling of amounts from OCI to profit and loss

During the 24 September Board meeting, the Board had tentatively agreed to not permit recycling of amounts within OCI, even when a liability is derecognised at an amount other than the contractual amount. However, because of the split views of the Board (7-5 vote) and that two Board members did not participate in the 24 September meeting, the staff brought the issue back to the Board to permit those two Board members as well as the new Board member (Darrel Scott) to express their views.

After a very brief discussion the staff clarified that when an entity settles a liability before maturity at other than the contractual amount (and at an amount other than the last re-measurement date — e.g. end of previous quarter), it should re-measure the financial liability immediately before settling and allocates the portion related to change of credit risk to OCI.

All three remaining Board members supported the decision not to permit recycling of amounts within OCI, even when a liability is derecognised at an amount other than the contractual amount. They argued that this answer provides consistency and comparability.

Effective date and transition

The Board discussed effective date and transition guidance related to fair value of financial liabilities. After a very short discussion the Board decided that, consistently with the requirement of IFRS 9 related to financial assets, early adoption of the requirements should be permitted. Nonetheless, the Board confirmed its earlier decision that if an entity elects to apply these amendments early, the entity must at the same time apply all finalised requirements in IFRS 9 that it does not already apply, but would not be locked in early adopting any subsequent phases of IFRS 9.

One Board member disagreed with this decision and urged the Board to allow early adoption of these requirements prior to other provisions of IFRS 9 as these requirements are urgent and represent improvement of financial reporting. Other Board members disagreed as such requirement could lead to large number of permutations of early adoptions of various phases thus further decreasing comparability of financial reporting.

The Board also decided to require retrospective application of the requirements. The Board clarified that an entity is not permitted to make new fair value option designations or revoke its previous fair value designations when it applies these amendments.

The Board also decided that that an entity is required to make a determination as to whether a mismatch would be created in profit or loss on the basis of the facts and circumstances that exist at the date of initial application of the amendments. Nonetheless, the staff clarified that the measurement of these liabilities would be reflected retrospectively.

Finally, consistently with the requirements of IFRS 9, the Board agreed with the requirements related to date of initial application, application of these requirements to derecognised liabilities and restatement of comparative periods.

The Board agreed that if an entity applies the amendments before 1 January 2011, the date of initial application can be any date between the issue of the amendments and 31 December 2010; and if the entity applies the amendments on or after 1 January 2011, the date of initial application is the beginning of the first reporting period in which the entity adopts the amendments.

In addition, the Board agreed that an entity is not required to restate prior periods if it applies the amendments before 1 January 2012. However if the entity restates prior periods to reflect the amendments to financial liabilities designated under the fair value option, those restated periods must also reflect the requirements in IFRS 9 that were finalised before these amendments.

The Board also clarified that if an entity prepares interim financial reports in accordance with IAS 34, the entity need not apply the amendments to interim periods prior to the date of initial application if it is impracticable.

The Board also agreed, consistently with requirements of IFRS 9 related to financial assets that these requirements are not applied to derecognised liabilities.

Carryover of implementation guidance from IAS 39

Without any substantive discussion, the Board agreed to relocate to IFRS 9 relevant parts of Implementation Guidance of IAS 39 related to requirements relocated from IAS 39 (e.g. related to classification and measurement of financial liabilities) as part of the forthcoming amendments to IFRS 9.