The option was added to IAS 39 when it was amended in December 2003. Following dialogue with banking supervisory authorities, who expressed concern that the fair value option might be used inappropriately, the IASB's latest exposure draft, Amendments to IAS 39 Financial Instruments: Recognition and Measurement - The Fair Value Option, proposes to limit the option's availability by:

• Limiting the types of financial assets and financial liabilities to which the option may be applied to the following five specified categories:
  • Financial assets and financial liabilities that contain embedded derivatives.
  • Financial liabilities whose cash flows are contractually linked to the performance
  • of assets that are measured at fair value.
  • Cases when the exposure to changes in the fair value of the financial asset or
  • financial liability is substantially offset by the exposure to the changes in the fair
  • value of another financial asset or financial liability, including a derivative.
  • Financial assets other than loans and receivables.
  • Items that other Standards allow or require to be designated as at fair value
  • through profit or loss.
• Requiring that the option may be applied only to financial assets and financial liabilities whose fair value is verifiable.

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