BCG.2 The main changes from the 2010 Exposure Draft Fair Value Option for Financial Liabilities (the ‘2010 Own Credit Risk Exposure Draft’) are:

(a) For liabilities designated under the fair value option, IFRS 9 requires an entity to present the effects of changes in the liability’s credit risk in other comprehensive income unless that treatment would create or enlarge an accounting mismatch in profit or loss. If that treatment would create or enlarge an accounting mismatch in profit or loss, the entire fair value change is presented in profit or loss. That was the alternative approach set out in the 2010 Own Credit Risk Exposure Draft. The proposed approach in the 2010 Own Credit Risk Exposure Draft had treated all liabilities designated under the fair value option in the same way and had not addressed cases in which the proposed treatment would create or enlarge an accounting mismatch in profit or loss.

(b) IFRS 9 requires a ‘one-step’ approach for presenting the effects of changes in a liability’s credit risk in the performance statement. That approach requires the effects of changes in a liability’s credit risk to be presented directly in other comprehensive income, with the remaining amount of fair value change presented in profit or loss. The 2010 Own Credit Risk Exposure Draft had proposed a ‘two-step’ approach, which would have required the total fair value change to be presented in profit or loss. The effects of changes in a liability’s credit risk would have been backed out and presented in other comprehensive income.