CFM21530 - Accounting for corporate finance: International Financial Reporting Standards: IAS 39: classification of financial assets and financial liabilities: fair value through profit and loss

For those entities applying IFRS or FRS 101 with an accounting period beginning on or after 1 January 2018 refer to IFRS 9 for the recognition and measurement of financial instruments at CFM 21800+.

Fair value through profit and loss (FVTPL)

This category has two sub-categories: held for trading (HFT) and designated (CFM21540).

Held for trading

The HFT category is for any financial asset (or liability) held (or incurred) principally for the purpose of selling or repurchasing it in the short term; it also includes those that are part of a portfolio of identified financial instruments that are managed together and where there is a recent actual pattern of short-term profit-taking. Thus past practice can determine whether something is a trading item or not.

The HFT category in IAS 39 should not be confused with the tax concept of a company holding a financial asset or liability for the purposes of its trade. For example, a bank makes loans to customers as part of its trade. However, such loans would not be HFT assets (unless the bank intended to sell the portfolio of loans to produce a short-term profit); they would be classified as ‘loans and receivables’ (see CFM21580).

All derivatives are deemed to be held for trading other than those that are financial guarantee contracts or designated and effective as hedging instruments (see CFM27000+). This includes derivatives that are embedded in a host contract and are separately accounted for (‘bifurcated’) because they are not closely related to the host contract (CFM25040).

HFT items are stated at fair value with changes therein flowing through the income statement. If the fair value of any such assets cannot be reliably measured then the asset is stated at amortised cost. ‘Fair value’ and ‘amortised cost’ are explained in more detail at CFM21160 and CFM21170 respectively.