Under IFRS is prohibited to reclassify to and from FVtPL (HFT) category and why is this action prohibited, ask the standard body (IASB).
IMO, second is not correct. Classification to HTM vs AFS or FVtPL under IFRS strongly depends of company investement policies and preferences (f.ex. company bought debt security only for speculation purpose thus completely inadequate will be classify this investments to HTM category etc.).
The key is in that standard prohibites frequent changes policies to prevent earnings manipulation (otherwise managemet could reclassify each investement as frequent as due to favorable market conditions changes direction).
I agree that the decision depends on many factors , but I think the statement is correct. Although I don’t recall a solid prescriptive test to see whether HTM is applicable, the two tests provided (business model and cash flow characteristics) suggest the company intends to keep to maturity. In other words business model hints at an established and proven long term strategy and cash flow characteristics suggest the company will only receive coupons. Looks like it is trying to hold to maturity.
An investment t hat meets the definition of a debt security and that management has the intent and ability to hold to maturity is classified as HTM. An investment in a debt security that is not traded in an active market could be classified as HTM if it meets certain conditions. Investments in debt securities that are classified a s HTM are accounted for at amortized cost. An entity is required to reassess the appropriateness of classifying its debt securities as HTM as of each reporting date. If an entity (1) no longer has the ability to hold securities to maturity , (2) sells or transfers one or more HTM debt securities before maturity for reasons that materially contradict the entity’s stated intent to hold those securities until maturity, or (3) has a pattern of such sales, the entity must reclassify its remaining HTM debt securities. In scenarios (2) and (3) above, an entity must reclassify its remaining HTM debt securities as AFS.http://www.iasplus.com/en-us/standards/ifrs-usgaap/debt-eq-securities
Well thanks for that, but I am saying the terms “business model” and “cash flow characteristics” could be seen as proxies to points 1) and 3) respectively, i.e. business model=company has the ability to hold to maturity, cash flow=there have been no sales in the past, only coupon receipts.
I am looking at the spirit of IAS, not the letter of IAS