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IAS Plus Update — IASB issues proposals on the fair value option for financial liabilities

Published on: May 18, 2010

On May 11, 2010, the IASB published exposure draft ED/2010/4 Fair Value Option for Financial Liabilities setting out their proposals on the presentation of gains and losses on liabilities designated under the fair value option.

These proposals are part of the IASB’s plan to improve and simplify the accounting for financial instruments. If finalized, entities that have designated financial liabilities at fair value through profit or loss under the fair value option will no longer present in profit or loss a gain from a deterioration in own credit risk or loss from an improvement in own credit risk.

Instead, gains and losses arising from changes in an entity’s own credit risk will be presented in other comprehensive income. The Board is responding to the criticisms voiced by many constituents that recognizing the effects of changes in an entity’s own credit risk in profit or loss does not provide useful information and is counter-intuitive because an entity will recognize gains that it has limited ability to realize at times when its performance is worsening.

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