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IFRS 9: Financial Instruments (replacement of IAS 39)

IASB Meeting Summaries and Observer Notes


 IASB/FASB May 2012


 

Fair value through other comprehensive income (FVOCI) category for eligible debt instruments

The IASB discussed whether an FVOCI category for eligible debt instruments (the meaning of 'eligible debt instruments' is discussed further in the following section) should be added to IFRS 9 Financial Instruments and, if so, how the mechanics of this category should work.

The IASB tentatively decided that an FVOCI measurement category for eligible debt instruments should be added to IFRS 9.

Twelve IASB members agreed.

For the FVOCI measurement category for eligible debt instruments, the IASB tentatively decided that:

  • Interest income on such instruments should be recognised in profit or loss using the effective interest method that is applied to financial assets measured at amortised cost.
    Twelve IASB members agreed.
  • Credit impairment losses/reversals on such instruments should be recognised in P&L using the same credit impairment methodology as for financial assets measured at amortised cost.
    Twelve IASB members agreed.
  • The cumulative fair value gain or loss recognised in OCI should be recycled from OCI to P&L when these financial assets are derecognised.
    Eleven IASB members agreed.

FVOCI and Fair Value through Net Income (FVNI) Business Model Assessment for Financial Assets

The boards IASB discussed the business model assessment for FVOCI and FVNI, including which measurement category should be defined and which should be a residual category.

The boards tentatively decided that the FVOCI category should be defined, and FVNI should be the residual category.

The boards tentatively decided that financial assets should be measured at FVOCI if they are eligible debt instruments (that is, they pass the contractual cash flow characteristics assessment) and are managed held within a business model whose objective is both to hold the financial assets to collect contractual cash flows and to sell the financial assets. The boards tentatively decided to provide application guidance on the types of business activities that would qualify for the FVOCI business model.

Ten IASB members and six FASB members agreed.

Reclassification of financial assets

The boards discussed whether, and in what circumstances, financial assets should be reclassified.

The IASB tentatively decided to extend the existing reclassification requirements in IFRS 9 to the FVOCI category.

Fourteen IASB members agreed.

The FASB tentatively decided to prospectively require financial assets to be reclassified when, and only when, the business model changes, which should be very infrequent. Changes in the business model that require reclassifications must be (i) determined by the entity's senior management as a result of external or internal changes (ii) significant to the entity's operations; and (iii) demonstrable to external parties. The FASB will discuss at a future meeting whether reclassification of financial assets would be accounted for prospectively as of the first day of the entity's next reporting period, or as of the last date of the entity's reporting period in which the business model changes.

Seven FASB members agreed.

At a future meeting, the boards will further consider how to account for reclassifications.

Date: 5/21/2012