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The IFRS eligibility criteria for use of the fair value option are more restrictive than under US GAAP.
US GAAP
IFRS
With some limited exceptions for certain financial liabilities addressed by other applicable guidance (e.g., financial instruments that are in whole or in part classified by the issuer as a component of shareholder’s equity, such as a convertible debt security with a non-contingent BCF), US GAAP permits entities to elect the fair value option for any recognized financial liability.
IFRS permits entities to elect the fair value option for financial liabilities when:
  • a contract contains one or more embedded derivatives and the entire contract is not measured at fair value through profit or loss (unless the embedded derivative does not significantly modify the cash flows or it is clear with little or no analysis that separation of the embedded derivative(s) is prohibited), or
  • it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as “an accounting mismatch”), or
  • a group of financial instruments is managed and its performance is evaluated on a fair value basis in accordance with a risk management strategy.
The fair value option may only be elected upon initial recognition of the financial liability or upon some other specified events identified in ASC 825-10-25-4 and ASC 825-10-25-5.
See SD 11.3 for information on the normal purchase normal sale exception.
The fair value option may only be elected upon initial recognition of the financial liability.
See SD 11.3 for information on the use of the fair value options for contracts that meet the “own use” scope exception.

PwC. All rights reserved. PwC refers to the US member firm or one of its subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

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