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EFRAG publishes discussion paper on the impairment and recycling of equity instruments

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image
  • European Union Image

01 Mar 2018

The European Financial Reporting Advisory Group (EFRAG) has published a discussion paper 'Equity Instruments - Impairment and Recycling' to gather constituents' views on recycling and impairment of equity instruments designated at fair value through other comprehensive income to develop its technical advice to the European Commission.

In the first phase of the project, the European Commission asked EFRAG to collect quantitative data on the current holdings of equity instruments and their accounting treatment and investigate if entities expect that the new accounting requirements will affect their decisions in relation to investment in equity instruments. EFRAG reported its findings from this first phase in January 2018.

In the second phase of the project, the Commission asked EFRAG to provide advice on whether and how the requirements in IFRS 9 on accounting for holdings of equity instruments could be improved. As part of its due process, EFRAG has now published the discussion paper to gather constituents' views on recycling and impairment of equity instruments designated at fair value through other comprehensive income.

EFRAG has not included a preliminary view on the issues explored. Rather, the paper analyses the relevance of recycling in the context of a long-term investment business model and presents arguments on the conceptual relationship between recycling gains and losses on derecognition and impairment. The paper considers how the application problems identified with IAS 39's impairment model for available-for-sale equity instruments could be addressed. It illustrates an impairment model and a revaluation model but does not express a preliminary view as to which, if either, of these two models is preferable.

​Comments on the discussion paper are expected by 25 May 2018. It can be downloaded from the EFRAG website.

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