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Amendments to IAS 39, Financial Instruments: Recognition and Measurement

Date recorded:

Fair Value Measurement Option

The Board agreed:

  • to retain the fair value measurement option for all financial instruments as proposed in the exposure draft of amendments to IAS 39 and to clarify that the election of fair value is irrevocable;
  • to clarify that demand deposits may be recognised at fair value, which is the amount payable on demand today;
  • to require disclosure, for financial assets held for trading or designated to be measured at fair value, of the amount included in net profit or loss; however, disclosure will not be required of the criteria used to select the items; and
  • not to permit exclusion of the effects of an entity's own credit risk in measuring fair value; separate disclosure of the fair value effect of an entity's own credit risk will not be required.
The Staff proposed to explore in a future paper to extend the fair value option to portions of financial assets and financial liabilities. However, the proposal was not supported by the Board, as it is inconsistent with the notion of 'irrevocable'.

Basis Adjustment for Hedges of Forecasted Transactions

The Board discussed the proposal in the ED to prohibit basis adjustment for forecasted transactions that resulted in the recognition of an asset or liability. After discussion, the Board agreed to allow an option for basis adjustment for non-financial assets. This adjustment would, however, be considered as an indicator of impairment. It was noted that the staff should consider in a future paper the effect of this option on the definition of 'cost of an asset' particularly in IAS 16.

Firm Commitments

The Board discussed the proposal in the ED to treat hedges of firm commitments as fair value hedges, rather that as cash flow hedges. The Board agreed to retain the proposal of the ED even for a foreign currency firm commitment.

Reversal of an Impairment Loss on Available-for-Sale Financial Assets

The Staff reported that 87% of respondents to the ED disagreed with the proposal in the ED to prohibit all reversals of impairment losses on AFS financial assets. The Board agreed (by vote of 8 to 6) that AFS equity instruments should be measured above cost in equity and below cost in the income statement. The Board agreed to go back to the requirement in the existing IAS 39 (by vote of 10 to 4) that an impairment loss on an AFS debt instruments should be reversed if the impairment event reverses.

The Board will consider whether this change needs to be exposed. Some Board members believed this to be necessary as they considered the decision in respect of equity instruments to be a fundamental change in accounting for AFS equity instruments.

Treatment of Hedges of Forecasted Transactions

The Board reaffirmed (by vote of 13 to 1) that hedges of forecasted transactions should be treated as cash flow hedges, as proposed in the ED (and as is in the existing IAS 39).

Correction list for hyphenation

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