Impairment or change in fair value of securities available for sale?

Question

If market price of securities (recognized as available for sale (AFS)) have significantly decreased during a 2-year period (around 75%), do I recognize this as impairment in the income statement? From what I've read, it is assumed that main reason for decrease is change of management. This to me is a clear indication of impairment. However, a recapitalization has also been announced, but looks like the market has not responded to this. Do I treat this as impairment and not just change in fair value through other comprehensive income?

Answer 1

Financial assets are not within the scope of IAS 36 - Impairment of Assets [vide IAS 36.2(e)]. Therefore I think you need to account for it as a change in fair value through other comprehensive income.

Comments

Hi AndyK
It is not IAS 36 I was referring to with regards to impairment losses, but IAS 39.55 (b) which states: "Fair value changes on AFS assets are recognised directly in equity, through the statement of changes in equity, except for interest on AFS assets (which is recognised in income on an effective yield basis), IMPAIRMENT LOSSES and (for interest-bearing AFS debt instruments) foreign exchange gains or losses."

Therefore, my question was do I recognise this big decrease in market prices as impairment losses with regards to requirements of IAS 39.55 (b) in the income statement or as change in fair value through other comprehensive income? More directly, did anyone have such a situation where they recognised big decrease in price of AFS securities as impairment losses in IS?

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IAS 39.10 to 57 is removed by the latest standard and IAS 39's AFS and HTM categories are eliminated by the new IFRS 9.

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Hi AcMac

Yes, IAS 39 will be completely removed by IFRS 9 when its obligatory, but IAS 39 is still in use and I have to apply it, so the question is still on.