The Board continued its redeliberations of the exposure draft Fair Value Option for Financial Liabilities (ED) - primarily, how the effects of changes in a liability's credit risk should be presented in the statement of comprehensive income and whether amounts presented in other comprehensive income (OCI) should be recycled to profit or loss (P&L).
The comment period for the ED ended in July 2010. At the September meeting the Board tentatively decided that for all liabilities designated under the fair value option (FVO), the effects of changes in a liability's credit risk will be required to be presented in OCI unless such treatment would create a mismatch in P&L. If such a mismatch would be created, the entire fair value change would be required to be presented in P&L.
At this meeting, the Board made the following tentative decisions:
- The effects of changes in a liability's credit risk will be presented in the statement of comprehensive income via a 'one-step approach'. Under that approach, the portion of the change in fair value attributable to changes in the liability's credit risk will be presented directly in OCI. All other changes in fair value will be presented in P&L.
- Any finalised requirements on the treatment of own credit risk will not apply to loan commitments and financial guarantee contracts designated under the FVO. All fair value changes for those items will continue to be presented in P&L.
The Board discussed whether amounts should be recycled from OCI to P&L when a liability is derecognised and the effects of changes in a liability's credit risk are realised. The Board will continue that discussion at the next Board meeting.