Fair value option for liabilities

Learning objectives

• Support the designation of a liability at fair value through profit or loss when it eliminates or significantly reduces an accounting mismatch.L2

Normative references

• IFRS 9 §4.2.2At initial recognition, the entity may irrevocably designate a financial liability at FVTPL when permitted by para. 4.3.5, or when doing so results in more relevant information because: (a) it eliminates or significantly reduces an accounting mismatch; or (b) a group of financial liabilities (or of financial assets and financial liabilities) is managed and its performance is evaluated on a fair value basis in accordance with a documented strategy, and information on that basis is provided internally to key management personnel. The portion of the change attributable to own credit risk is then accounted for in accordance with para. 5.7.7.

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

2 questions

• Pelsa SA issues a loan whose rate is indexed to an index. It holds assets measured at fair value through profit or loss (FVTPL) whose fair value changes largely offset those of the debt. Measured at amortised cost, the debt would create an accounting mismatch. Nu is considering designating the debt at FVTPL. Which analysis is consistent with IFRS 9?L2
• Xi SA issues a loan whose repayment is indexed to a stock index; it uses the proceeds to acquire a portfolio of securities measured at fair value through profit or loss. Measured at amortised cost, the loan would create a mismatch with the portfolio. Management is considering designating it at fair value through profit or loss. Write a short note concluding on this designation, separating case facts, rule and judgement.L2