The IASB developed this amendment after commentators, particularly prudential supervisors of banks, securities companies, and insurers, raised concerns that the fair value option contained in the 2003 revisions of
IAS 39 might be used inappropriately. The new revisions limit the use of the option to those financial instruments that meet certain conditions. Those conditions are that:
- the fair value option designation eliminates or significantly reduces an accounting mismatch
- a group of financial assets, financial liabilities, or both are managed and their performance is evaluated on a fair value basis in accordance with a documented risk management or investment strategy,
- an instrument contains an embedded derivative that meets particular conditions.
The amendment is effective 1 January 2006, with earlier application encouraged. Click for
Press Release (PDF 55k).