What if the equity is treated as AFS? Can the loss be reversed under IFRS?
The Schweser Book 2 P.65 said:
IFRS reversal
“If the held-to-maturity security’s value recovers in a later period, and its recovery can be attributed to an event (such as a credit upgrade), the impairment loss can be reversed. Impairments of available-for-sale debt securities may be reversed under the same conditions as impairments of held-to-maturity securities. Reversals of impairments are not permitted for equity securities.” Does it mean that under IFRS, both AFS/HTM debt securities can reverse its impairment loss, while both AFS/HTM equity securities can not? Thanks
How about AFS Equity Security? Is it permitted to reverse its impairment loss under IFRS? If yes, then I am confused with what Schweser said. "Reversals of impairments are not permitted for equity securities.”
If No, then I am confused with the question above as I can not identify whether the equity is HFT/AFS security, as the answer will be totally different.
A subsequent increase in FV of an AFS equity security is measured on the B/S at its FV (as normal) and the cumulative gain is recognized in OCI as is the case for AFS securities. I believe what is meant by “reversals of impairments are not permitted for equity securities” is that any increase in FV does not immediately flow through P&L as would be the case with a debt security. Pg 118 of the curriculum/text states in regards to debt securities “…the impairment loss is reversed with the amount of the reversal recognized in profit or loss.”
According the cirriculum, under IFRS you can reverse impairment charges for AFS Equity Securities (not true)
Under US GAAP, you cannot. The logic with GAAP is that these loans are carried at Lower of Cost or Market, and when you impair the asset you are creating a new cost basis and that is now the celing. Who knows what the foreigners are thinking with IFRS.
You see similar diffeences between IFRS and US GAAP with inventory and Fixed Assets.
Note: The concept of holding Equites as AFS is disappering in both US GAAP (ASU 2016-01) and IFRS (IFRS 9). The cirriculum discusses IFRS 9, but not ASU 2016-01 as it hadn’t yet been issued
I take back what I said about AFS Equity scurities under IFRS. The cirriculum doesn’t say what I thought it said. It is a reminder that I need to spend some time with IFRS making sure I understand what is the same and different from US GAAP. And I shouldn’t be so quick to answer IFRS questions. Thanks, Fries.
