EFRAG's Comment Letter on the IASB ED Fair Value Option for Financial Liabilities
19 July 2010
EFRAG believes that the introduction of a new, supplementary measurement attribute is not desirable. Regarding own credit risk, EFRAG supports the recognition and reporting of changes in Other Comprehensive Income.
EFRAG agrees that fair value changes due to changes in an entity’s own credit risk from remeasurement of liabilities designated under the fair value option should not impact profit or loss, except in extremely rare circumstances where the fair value changes of financial assets are directly linked to an issuer’s own credit risk.
Whilst the initial preference was not to recognise changes in own credit risk at all, as expressed in the response to the IASB’s Discussion Paper Credit Risk in Liability Measurement issued on 23 September 2009, EFRAG has been convinced that the introduction of a new, supplementary measurement attribute is not desirable. EFRAG therefore supports that changes in own credit risk are recognised and reported in OCI. EFRAG expresses this support reluctantly as EFRAG believes that a thorough fundamental debate is necessary on how best to present the performance of an entity, including the role of OCI. In this respect, EFRAG does not support the two-step approach. EFRAG believes the introduction of such a new presentational method in IFRS is not justified, and would create potential confusion and complexity.
EFRAG views the proposals in the ED as an improvement compared to the current IAS 39 and urge the IASB to consider amending that standard correspondingly.
© EFRAG - European Financial Reporting Advisory Group
