Background to the fair value option in IAS 39

BCZ4.54 In 2003 the IASB concluded that it could simplify the application of IAS 39 (as revised in 2000) for some entities by permitting the use of fair value measurement for any financial instrument. With one exception, this greater use of fair value is optional. The fair value measurement option does not require entities to measure more financial instruments at fair value.

BCZ4.55 IAS 39 (as revised in 2000) [IFRS 9 eliminated the loans and receivables and available-for-sale categories.] did not permit an entity to measure particular categories of financial instruments at fair value with changes in fair value recognised in profit or loss. Examples included:

(a) originated loans and receivables, including a debt instrument acquired directly from the issuer, unless they met the conditions for classification as held for trading (now in Appendix A of IFRS 9).

(b) financial assets classified as available for sale, unless as an accounting policy choice gains and losses on all available-for-sale financial assets were recognised in profit or loss or they met the conditions for classification as held for trading (now in Appendix A of IFRS 9).

(c) non-derivative financial liabilities, even if the entity had a policy and practice of actively repurchasing such liabilities or they formed part of an arbitrage/customer facilitation strategy or fund trading activities.