What does this sentence on p. 12 of schweser exactley mean: Firms can choose to report debt and equity securities that would otherwise be treated as held-to-maturity or available-for-sale securities at fair value. Does this mean that instead of reclassifying it under “held-for-trading” it is called “designated at fair value”. And i dont quite understand how the difference is between US GAAP and IFRS when reclassifying securities. —> US GAAP does permit securities to be reclassified in or out of held for trading or designated at fair value. —>IFRS does not allow to reclassify securites in or out of held for trading Correct?
A company has the option of designating its securities at fair value. Its book value would be equivalent to its market value and gains/losses would flow through the income statement. The designation is irreversible.
but at the same time, the company could also classify its securites as held for trading? i dont see the difference.
yea what is the difference between HFT and at fair value? they seem to be treated exactly the same, only designating something at HFT allows you to reclassify where fair value is irreversible. why would any firm every restrict themselves like that
yellayella: just think of designated at fair value as a HTM or AFS that is treated like a Trading Security (i.e. FV on B/S, unrealized and realized g/l flow to I/S). bpuldog: the designation is irreversible only under IFRS i think. IFRS strictly prohbits moving into and out of trading security classifications, while gaap allows it. since designated at fair value securities act as trading securities, this prohbition under ifrs applies to them as well.
thank you! 
the show NY Wrote: ------------------------------------------------------- > yellayella: just think of designated at fair value > as a HTM or AFS that is treated like a Trading > Security (i.e. FV on B/S, unrealized and realized > g/l flow to I/S). > > bpuldog: the designation is irreversible only > under IFRS i think. IFRS strictly prohbits moving > into and out of trading security classifications, > while gaap allows it. since designated at fair > value securities act as trading securities, this > prohbition under ifrs applies to them as well. Can you provide a reference for that? On page 5-7 of the Stalla guide, itsays otherwise.
IFRS does allow it, its very restrictive with respect to the HFT securities, GAAP is more flexible and allows it (and thats why by the time we have to use this, GAAP will be long gone!), no exact pg number but in CFAI texts
For the first paragraph, schweser book 2 page 12: “Firms can choose to report debt and equity securities that would otherwise be treated as held to matuirty or available for sale securities at fair value. Unrealized gains and losses on designated financial assets and libailities are recognized in the income statement, similar to the treatment of held for trading securities.” For the second paragraph, schweser book 2 page 14: “Under IFRS, investments classified as held to maturity or available for sale typically cannot be reclassied as helf for trading or designated at fair value. U.S GAAp does permit securities to be reclassified into or our of held for trading or designated at fair value. Unrealized gains are reconized on the income statment at the time the securitiy is reclassifed.”
^^ the two statements above completely contradict each other, which one is right so we can settle this please.
they dont contradict each other at all. the first talks about classification, the second talks about REclassification
the show NY Wrote: ------------------------------------------------------- > For the first paragraph, schweser book 2 page 12: > “Firms can choose to report debt and equity > securities that would otherwise be treated as held > to matuirty or available for sale securities at > fair value. Unrealized gains and losses on > designated financial assets and libailities are > recognized in the income statement, similar to the > treatment of held for trading securities.” > > For the second paragraph, schweser book 2 page 14: > “Under IFRS, investments classified as held to > maturity or available for sale typically cannot be > reclassied as helf for trading or designated at > fair value. U.S GAAp does permit securities to be > reclassified into or our of held for trading or > designated at fair value. Unrealized gains are > reconized on the income statment at the time the > securitiy is reclassifed.” Thanks.
do u agree? does stalla say something different or did u misinterpret stalla>
Stalla says reclassifying to or from designated at fair value is generally prohibited, for both IFRS and GAAP.
i do not have cfai texts on me and that is ultimate source–can someone please check? meanwhile, this is a pretty good source too: http://www.fasb.org/summary/stsum156.shtml This Statement permits an entity to reclassify certain available-for-sale securities to trading securities, regardless of the restriction in paragraph 15 of Statement 115, provided that those available-for-sale securities are identified in some manner as offsetting the entity’s exposure to changes in fair value of servicing assets or servicing liabilities that a servicer elects to subsequently measure at fair value. This option is available only once, as of the beginning of the fiscal year in which the entity adopts this Statement. Any gains and losses associated with the reclassified securities that are included in accumulated other comprehensive income at the time of the reclassification should be reported as a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year that an entity adopts this Statement. The carrying amount of reclassified securities and the effect of that reclassification on the cumulative-effect adjustment should be separately disclosed. AND http://www.iasb.org/NR/rdonlyres/BE8B72FB-B7B8-49D9-95A3-CE2BDCFB915F/0/AmdmentsIAS39andIFRS7.pdf DO2 As described in paragraph BC11E, in October 2008 the Board received requests to address differences between the reclassification requirements of IAS 39 and US GAAP. SFAS 115 permits a security to be reclassified out of the trading category in rare situations. SFAS 65 permits a loan to be reclassified out of the Held for Sale category if the entity has the intention to hold the loan for the foreseeable future or until maturity. IAS 39 permitted no reclassifications for financial assets classified as held for trading. The Board was asked to consider allowing entities applying IFRSs the same ability to reclassify a financial asset out of the held-for-trading category as is permitted by SFAS 115 and SFAS 65. DO3 Messrs Leisenring and Smith both believe that the current requirements in IFRSs for reclassification are superior to US GAAP and that the accounting for impairments in US GAAP is superior to the requirements of IAS 39. DO4 Furthermore, Messrs Leisenring and Smith do not believe that amendments to standards should be made without any due process.
From CFA text Vol2 Reading 21, Page 14 IFRS generally prohibits reclassification of securities into or out of designated at fair value category. Reclassification out of held for trading is severely restricted. Held to maturity can be reclassified as available for sale and vice versa. GAAP allows reclassification of securities between all categories.
Perfect–looks like Schweser agrees with CFAI this time around.