At this session, the IASB and FASB discussed the scope of the fair value through other comprehensive income (FVOCI) measurement category for debt instruments and the fair value option.
The scope of the FVOCI measurement category for debt instruments (joint IASB and FASB discussion)
The IASB and the FASB discussed the scope of the FVOCI measurement category for debt instruments and re-affirmed that a debt instrument will be measured at FVOCI only if:
- the debt instrument passes the contractual cash flow characteristics assessment (as discussed by the boards at the February 2012 joint board meeting); and
- the debt instrument is managed within the relevant business model (as discussed by the boards at the joint board meeting in May 2012).
Fair value option (IASB-only discussion)
The IASB discussed the fair value option for debt investments measured at FVOCI and tentatively decided to extend the current eligibility condition in IFRS 9 Financial Instruments for designating financial assets under the 'accounting mismatch' fair value option to debt investments that would otherwise be measured at FVOCI. These debt instruments may thus be measured at fair value through profit or loss (FVPL) if doing so would eliminate or significantly reduce an accounting mismatch.
Fair value option (FASB-only discussion)
The FASB discussed the fair value option for financial assets and financial liabilities. The FASB tentatively decided that an entity may, at initial recognition, irrevocably elect a fair value option for the following financial instruments:
- A hybrid financial liability may be designated at FVPL, unless
- the embedded derivative(s) do(es) not significantly modify the cash flows that otherwise would be required by the contract; or
- it is clear with little or no analysis, when a similar hybrid instrument is first considered, that separation of the embedded derivative(s) is prohibited.
- A group of financial assets and financial liabilities may be designated at FVPL, if both of the following conditions are met:
- the entity manages the net exposure relating to those financial assets and financial liabilities (which may be derivative instruments) on a fair value basis; and
- the entity provides information on that basis to the reporting entity's management.