The International Accounting Standards Board
(IASB) is seeking feedback on the financial liabilities section of
IFRS 9 Financial Instruments.
The IASB has already completed the
classification and measurement of the financial assets stage of
IFRS 9, the standard that will replace the complex and unpopular
The liabilities proposal features just one key
change to the accounting outlined in IAS 39, which addresses
counter-intuitive effects of fair value.
The IASB said many investors and stakeholders
believe volatility in profit or loss resulting from changes in the
credit risk of liabilities (knows as ‘own credit’) that an entity
chooses to measure at fair value is counterintuitive and does not
provide useful information.
The IASB has, therefore, proposed that all
gains and losses resulting from changes in own credit for financial
liabilities that an entity chooses to measure at fair value should
be transferred to other comprehensive income.
Changes in own credit will not affect reported
profit or loss.
“Whilst there are theoretical arguments for
treating financial assets and liabilities in the same way, it is
hard to defend the accounting as providing useful information when
a company suffering deterioration in credit quality is able to book
a corresponding large profit, especially when investors tell us
that such information is often excluded from their financial
models,” IASB chairman David Tweedie explained.
No other changes have been proposed as IASB
consultations revealed most stakeholders felt the existing
requirements, aside from the effects of changes to own credit, work
The exposure draft Fair Value Option for
Financial Liabilities is open for comment until 16 July