The net exposure exception

Learning objectives

• Assess whether a group of financial instruments meets the conditions for the portfolio exception (managed and reported on a net basis, measured at fair value).L4
• Calculate the fair value of a net position from the long and short positions of a group.L4

Normative references

• IFRS 13 §48Exception: a group of financial assets and financial liabilities managed on the basis of the net exposure to market risks or credit risk may be measured on the basis of the price of a net position.
• IFRS 13 §49The exception is conditional on the documented management of the group on a net basis, on information being provided to key management personnel on that basis and on each item being measured at fair value at the end of each reporting period.
• IFRS 13 §50The exception in para. 48 does not concern presentation; when the basis of presentation differs from the basis of measurement, the entity may need to allocate the portfolio-level adjustments to the assets and liabilities of the group, on a reasonable and consistent basis that is appropriate in the circumstances.
• IFRS 13 §51Using the exception in para. 48 is an accounting policy decision made in accordance with IAS 8; it is applied consistently from period to period for a particular portfolio, including the method of allocating the adjustments.
• IFRS 13 §96When the portfolio exception is applied, the entity discloses that fact as an accounting policy choice.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

7 questions

• On what condition may an entity measure a group of financial assets and liabilities on the basis of the price of a net position?L4
• Which statements about the portfolio exception (net position) are correct? (Several answers.)L4
• Auvrane bank manages a group of instruments exposed to the same market risk on the basis of its net exposure, with documented management and reporting to management on that basis; each item is measured at fair value at the reporting date (exception conditions met, case data). The long positions are worth {long_positions} and the short positions {short_positions} (at market price). Compute the group's net position.L4
• Vessolane bank measures a group of derivatives on the basis of a net position "to simplify valuation", although there is no documented management of the group on a net basis and management is not informed on that basis. What is the error?L4
• Ormelane bank applies the portfolio exception to a group of swaps meeting all the conditions. A director concludes that it must now present these swaps net (a single amount) in the statement of financial position. What is the right answer?L4
• Hérandelle bank manages its interest-rate swap portfolio on the basis of net market-risk exposure: written management policy, daily management reports based on net positions, each swap measured at fair value at the reporting date. It plans to apply the portfolio exception. Write a reasoned analysis: conditions met, consistency over time, effect on presentation and disclosure.L4
• Mercanelle trades a forward contract to buy copper that falls within the scope of IFRS 9 but does not meet the IAS 32 definition of a financial asset or liability (case data). The entity otherwise manages its net market-risk exposures in a documented way. Can this contract be part of the group measured on the basis of a net position?L4