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This summary of Emerging Issues Committee (EIC) decisions has been prepared for information purposes only. Decisions reported reflect only the current status of discussion on projects, which may change after further deliberations. Decisions to publish Abstracts, amendments thereto or Draft Abstracts are final only after a formal ballot process.
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Abstract Approved EIC-173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities The Committee discussed the fair value measurement of financial assets and financial liabilities. It noted that, in particular, there has been diversity in practice as to whether an entity’s own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of derivative instruments. The Committee reached a consensus that these risks should be taken into account and agreed to issue this consensus as a final Abstract. The basis of application reads as follows : “The Committee reached a consensus that the accounting treatment in this Abstract should be applied retrospectively without restatement of prior periods to all financial assets and liabilities measured at fair value in interim and annual financial statements for periods ending on or after the date of issuance of this Abstract. Retrospective application with restatement of prior periods is permitted but not required. Early adoption is encouraged. The Committee noted that retrospective application without restatement of prior periods should be applied as follows. Entities would remeasure the financial assets and financial liabilities, including derivative instruments, as at the beginning of the period of adoption, to take into account both own credit risk and counterparty credit risk. Any resulting difference would be recorded as an adjustment to retained earnings, except that: - for derivatives in a fair value hedging relationship accounted for by the “shortcut method”, a resulting difference would adjust the basis of the hedged item; and
- for derivatives in cash flow hedging relationships, a resulting difference would be recorded in accumulated other comprehensive income.
The Committee also reached a consensus that entities that do not apply Section 3855 may defer application of the accounting treatment in this Abstract to interim and annual financial statements relating to fiscal years beginning on or after January 1, 2010.” It is expected that EIC-173 will be posted on the CICA website by the end of January 2009. |