1. March 2018

EFRAG publishes Discussion Paper “Equity Instruments: Impairment and Recycling”

Today, EFRAG has published its latest Discussion Paper Equity Instruments: Impairment and Recycling. (further Information)

This paper discusses whether equity instruments measured at fair value through OCI under IFRS 9 deserve an alternative accounting treatment not currently foreseen by the standard. As such, EFRAG proposes to reclassify changes in fair value recognised in OCI into net income for the period (so-called “recycling”) when the instruments are sold, at the latest, and at the same time to (re-)introduce impairment requirements (or an equivalent revaluation model) to present negative changes in fair value above a certain threshold in net income rather than in OCI. Effectively, this represents a method of accounting that is similar to the available-for-sale category under IAS 39, which, according to EFRAG, would be more robust and less subjective.

This discussion paper is the result of a research project undertaken by EFRAG that the European Parliament requested the EU Commission to undertake following the endorsement of IFRS 9. The EU Commission’s follow-up request to EFRAG is based on the hypothesis that the recycling prohibition contained in IFRS 9 may make it difficult for long-term investors to assess a company’s financial performance and may, thus, prevent them from investing in equities. The project has been conducted in two phases (phase 1 = assessment phase, phase 2 = possible solution phase).

This discussion paper is part of phase (2) and is open for comment until 25 May 2018. Based on this feedback, EFRAG plans to submit its final views to the EU Commission in the summer of this year.