The staff presented the effective date and transition requirements issues to the Board on the basis that the fair value option debate would be finalised in substantively the same form as currently drafted. The staff recommended the following:

• the effective date is annual periods beginning on or after 1 January 2006, with earlier application encouraged.
• entities be permitted to change their designations of which financial assets and financial liabilities the fair value option will and will not be applied to on the application date of the amendment.
• when entities do change their designations, entities should be required to restate comparative financial statements.

The Board discussed this issue at length, going through a number of scenarios including those posed by the 'carve out' adopted in Europe. The Board concluded that on the effective date of the restricted fair value option, an entity will be required to 'de-designate' any instrument that does not meet the new criteria for the fair value option. The fair value of that instrument on that date will become the deemed cost and the subsequent accounting will be on the basis of IAS 39.

A first-time adopter whose transition date coincides with the effective date of the restricted fair value option, or a first-time adopter of IFRS that also early adopts the restricted fair value option will be required to comply with IFRS 1 in this regard.