IAS Plus newsletter - Special Global Edition – Fair value option amendments to IAS 39

Published on: 22 Jul 2005

Amendment to IAS 39 – The Fair Value Option

The International Accounting Standards Board (IASB) issued the amendment to Financial Instruments: Recognition and Measurement – The Fair Value Option 16 June 2005. The amendment limits the ability for an entity to designate any financial asset or financial liability as at “fair value through profit or loss” (FVTPL).

The amendment was developed after a number of commentators, including the European Central Bank, the Basel Committee and the EU Commission, raised concerns that the fair value option in the revisions to IAS 39 in December 2003, which permitted any financial instrument to be designated as at FVTPL on initial recognition, may be used inappropriately.

IAS 39’s original fair value option was designed to address situations where the standard’s mixed measurement model could result in an entity reporting volatility on positions that are economically matched. The objective of the June 2005 amendment is to limit inappropriate use of the fair value option, while preserving its key benefits.

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