ipsas 29—financial instruments: recognition and measurement - IFAC

FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
that is not predetermined (such as for share options, warrants and similar
rights). With respect to the definition of held-to-maturity investments, fixed or
determinable payments and fixed maturity mean that a contractual
arrangement defines the amounts and dates of payments to the holder, such as
interest and principal payments. A significant risk of non-payment does not
preclude classification of a financial asset as held to maturity as long as its
contractual payments are fixed or determinable and the other criteria for that
classification are met. If the terms of a perpetual debt instrument provide for
interest payments for an indefinite period, the instrument cannot be classified
as held to maturity because there is no maturity date.
AG31. The criteria for classification as a held-to-maturity investment are met for
a financial asset that is callable by the issuer if the holder intends and is
able to hold it until it is called or until maturity and the holder would
recover substantially all of its carrying amount. The call option of the
issuer, if exercised, simply accelerates the asset’s maturity. However, if
the financial asset is callable on a basis that would result in the holder not
recovering substantially all of its carrying amount, the financial asset
cannot be classified as a held-to-maturity investment. The entity considers
any premium paid and capitalized transaction costs in determining
whether the carrying amount would be substantially recovered.
AG32. A financial asset that is puttable (i.e., the holder has the right to require
that the issuer repay or redeem the financial asset before maturity) cannot
be classified as a held-to-maturity investment because paying for a put
feature in a financial asset is inconsistent with expressing an intention to
hold the financial asset until maturity.
AG33. For most financial assets, fair value is a more appropriate measure than
amortized cost. The held-to-maturity classification is an exception, but
only if the entity has a positive intention and the ability to hold the
investment to maturity. When an entity’s actions cast doubt on its
intention and ability to hold such investments to maturity, paragraph 10
precludes the use of the exception for a reasonable period of time.
AG34. A disaster scenario that is only remotely possible, such as a run on a bank
or a similar situation affecting an insurer, is not something that is assessed
by an entity in deciding whether it has the positive intention and ability to
hold an investment to maturity.
AG35. Sales before maturity could satisfy the condition in paragraph 10 – and
therefore not raise a question about the entity’s intention to hold other
investments to maturity – if they are attributable to any of the following:
(a) A significant deterioration in the issuer’s creditworthiness. For
example, a sale following a downgrade in a credit rating by an external
rating agency would not necessarily raise a question about the entity’s
intention to hold other investments to maturity if the downgrade
IPSAS 29 APPLICATION GUIDANCE 1078