Financial assets at fair value through other comprehensive income classification is part of the decision model for the classification and measurement of financial assets, that started in the IFRS 9 Framework for financial assets. Finan
cial assets at fair value through other comprehensive income
This is the classification arrived at. Financial assets at fair value through other comprehensive income
The financial assets at fair value through other comprehensive income represent debt instruments and are designated using the fair value option.
Category classification criteria at initial recognition Financial assets at fair value through other comprehensive income
- Available only for investments in debt instruments (within the scope of IFRS 9). Designation at initial recognition is optional and irrevocable.
Subsequent measurement Financial assets at fair value through other comprehensive income
- Fair value, with all gains and losses recognised in other comprehensive income Financial assets at fair value through other comprehensive income
- Changes in fair value are subsequently recycled to profit and loss Financial assets at fair value through other comprehensive income
- Dividends are recognised in profit or loss. Financial assets at fair value through other comprehensive income
For debt financial instruments at FVOCI, fair value changes are recognised in other comprehensive income (i.e. unrealised result). Interest revenue, foreign exchange revaluation and impairment losses or reversals are recognised in profit or loss. Interest income (effective interest rate method) and expected credit losses are computed and recognised in the same manner as financial assets measured at amortised cost.
Upon derecognition, the net cumulative fair value gains or losses recognised in other comprehensive income are recognised in profit or loss. This is because at derecognition the changes in fair value have become a ‘real’ profit or loss (i.e. realised result). Financial assets at fair value through other comprehensive income
Establishing a distinction between ‘recycling’ and ‘without-recycling’ is important when measuring at FVOCI. Recycling means that after derecognition of a financial instrument, a reclassification of the accrued effects in other comprehensive income (OCI) is required in profit or loss. Financial assets at fair value through other comprehensive income
The FVOCI classification is mandatory for certain debt instrument assets unless the option to FVPL (‘the fair value option’) is taken. Whilst for equity investments, the FVOCI classification is an election. The requirements for reclassifying gains or losses recognised in other comprehensive income (OCI) are different for debt and equity investments.
For debt instruments measured at FVOCI, interest income (calculated using the effective interest rate method), foreign currency gains or losses and impairment gains or losses are recognised directly in profit or loss. The difference between cumulative fair value gains or losses and the cumulative amounts recognised in profit or loss is recognised in OCI until derecognition, when the amounts in OCI are reclassified to profit or loss.
This contrasts with the accounting treatment for investments in equity instruments designated at FVTOCI under which only dividend income is recognised in profit or loss with all other gains and losses recognised in OCI and there is no reclassification on derecognition. Financial assets at fair value through other comprehensive income
When the asset is derecognized or reclassified, changes in fair value previously recognized in OCI and accumulated in equity are reclassified to profit and loss on a basis that always results in an asset measured at FVOCI having the same effect on profit and loss as if it were measured at Amortized Cost.
The classification of a financial asset is made at the time it is initially recognised, namely when the entity becomes a party to the contractual provisions of the instrument. [IFRS 9 4.1.1] If certain conditions are met, the classification of an asset may subsequently need to be reclassified.
Financial assets measured at fair value through other comprehensive income are: Financial assets at fair value through other comprehensive income
- either, debt instrument investments that meets all of the following conditions: Financial assets at fair value through other comprehensive income
- The issuer holds the financial assets within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.
- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, or
- equity investments not held for trading, for which the entity has irrevocably elected at initial recognition to present changes in fair value in “other comprehensive income” (the fair value option through OCI).
