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ABSTRACT
AFS (available-for-sale securities) and FVTOC (fair value through other comprehensive income) have several similar characteristics that users may presume they are the same in accounting. Both require fair value measurement and recognition of changes in fair value in other comprehensive income (OCI). AFS is introduced in IAS 39, whereas FVTOCI securities have recently been finalized and published in IFRS 9. This paper identifies the similarities and differences between AFS and FVTOCI securities on classification and measurement, impairment, and hedge accounting. An empirical research on Thai banks and AFS was conducted during 2012-2015. The findings of this study indicate that some of AFS Securities may not meet the criteria for FVTOCI Securities classification. Impairment loss is an overhaul from IAS 39; expected loss is applied in IFRS 9. While both standards consider hedge accounting as optional, IFRS 9 widens the choices of hedging instruments and is more principle based.
JEL Classification: M41
Keywords: IAS 39; IFRS 9; classification and measurement of financial assets; impairment loss; hedge accounting; banks; regulatory capital management
I. INTRODUCTION
IASB has finalized and published IFRS 9 Financial Instruments which will become effective on January 1, 2018. A classification in IFRS 9 that closely resembles the available-for-sale (AFS) category in IAS 39 is fair-value-through-other comprehensive income classification (FTOCI). Both AFS and FVTOCI require fair value measurement and recognition of unrealized gains and losses in other comprehensive income (OCI). These make the two appear to be very much alike. However, the criteria for classification differ between the two standards and the accounting for impairment loss differs. Hedge accounting appears to be least affected, since the same three categories of hedges are addressed. Nevertheless, IFRS 9 simplifies hedge accounting and makes it easier to apply with much flexibility and yet more judgment exercised.
This study addresses the differences between AFS and FVTOCI on classification and measurement, impairment loss and hedge accounting. Illustrations are given for clarification of certain detailed deviations. The next section of the paper will analyze the differences between AFS and FVTOCI. This is followed by a discussion on implications on regulatory capital in the banking industry coupled with an empirical study on Thai banks in 2012-2015. Summary and concluding remarks will end the paper.
II. CLASSIFICATION AND MEASUREMENT OF...