Amendments to IAS 39: Fair Value Option

Date recorded:

At this meeting, the Board considered an analysis of the 115 comment letters received on the Exposure Draft and began to debate possible ways in which the Board might proceed in the light of these comments.

Summary analysis of letters:

  • 115 letters were received, with 65% from Europe, and 51% from preparers.
  • Only 15% of respondents agreed with restricting the fair value option. The majority of respondents (76%) did not agree with restricting the fair value option. 9% did not express a clear view, in the main because they chose to address only one or two specific proposals without expressing a general view.
  • Of the respondents that did not agree with restricting the fair value option, most did not want any change to the existing IAS 39 (60% of all comment letters). The rest would retain the fair value option with some changes, most frequently with requiring additional disclosures of when and why the fair value option was used. 19 respondents (17%) explicitly stated that they concurred with part or all of the Alternative Views.
  • Of those that agreed in general terms that the fair value option should be restricted, none agreed with substantially all the proposals in the Exposure Draft. Some would make the criteria stricter, so that fewer instruments would qualify for the fair value option (including 8 that would restrict the permission to use the option for instruments containing embedded derivatives - criterion (a) - to only those instruments that IAS 39 requires to be separated). Others would amend the criteria proposed, especially because they disagreed with the introduction of the 'verifiability' criterion (criterion (b)).

The Board noted the level of disagreement with the Exposure Draft as well as the fact that where suggestions had been made as alternatives, it appeared that those suggestions would not be workable.

Some Board members reiterated the initial intentions and rationale that led to the introduction of the fair value option; primarily to provide an alternative to hedge accounting, as well as promote the use of fair value in financial reporting. The Board noted that South Africa had been using the unrestricted fair value option since 2002 with no adverse effects and that Australia was in the process of implementing it.

The position of the FASB on this issue was discussed and noted to be as follows:

  • The FASB were intending to introduce the fair value option into its literature without any limitations but stopped work on that project once the IASB had issued the Exposure Draft proposing the limitation.
  • The FASB position was generally understood to be in favour of IAS 39 with the unrestricted fair value option.

In addition, FASB staff indicated that they were concerned about the operability of the limitation on the fair value option.

The Board also noted that this issue was not on the joint meeting agenda, and proposed that joint discussion with the FASB would be useful.

The Board decided to proceed as follows on this issue:

  • Seek views on alternative solutions. This process would include seeking input from Regulators and Banks.
  • Seek input from the Financial Instruments Task Force

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