International Financial Reporting Standards_guide.pdf

198 Chapter 17 Financial Instruments: Recognition and Measurement (IAS 39)
FIGURE 17.1 Decision Tree for Impairment of Available-for-Sale Financial Assets
Determine the fair value of the instrument
Instrument traded in an
active market
Instrument traded in a market
that is no longer active
Instrument not traded
Market price is fair value
Use a valuation technique to
determine fair value
Use a valuation technique to
determine fair value
Has there been a decline in fair value?
Yes
No
Is there also objective evidence of impairment?
Debt instruments
Equity instruments
Indicators include significant financial difficulties
for the issuer and default instruments.
Indicators include significant or prolonged
decline in the fair value below cost.
Yes
No
Yes
No
There is objective evidence of impairment and
the instrument should be impaired.
The instrument is not impaired.
Note:
Objective evidence includes:
• significant financial difficulty of the issuer or obligor;
• a breach of contract, such as a default or delinquency in interest or principal payments; and
• granting the borrower a concession that the lender would not otherwise consider.
An impairment loss could be reversed in future periods, but the reversal may not exceed the amortized cost for those assets that are not
remeasured at fair value (for example, held-to-maturity assets).