5.2 Scope

The FVO for financial assets and financial liabilities addresses the ________________________ that arise when related items are measured using ______________________. The results may be excessive variability in _____________ and amounts that are not representationally faithful.

The FVO for financial assets and financial liabilities addresses the ACCOUNTING MISMATCHES that arise when related items are measured using DIFFERENT ATTRIBUTES. The results may be excessive variability in EARNINGS and amounts that are not representationally faithful.

NOTE:

1) The FVO provides for greater consistency in accounting by all entities

2) Furthermore, an entity may avoid the cost and complexity of hedge accounting by electing the FVO

5.2 Scope

The FVO allows entities to measure most financial instruments at ___________.

Fair Value

5.2 Scope

In the Fair Value Option:

1) Unrealized gains and losses are reported in ________________.

2) FVO and the accounting for _____________ is essentially the same.

In the Fair Value Option:

1) Unrealized gains and losses are reported in EARNINGS.

2) FVO and the accounting for TRADING SECURITIES is essentially the same.

5.2 Scope

The FVO may NOT be elected for:

1) An investment that must be consolidated

     a) The FVO is not an alternative to consolidation

2) Postretirement employee benefit obligations and other deferred compensation obligations

3) Most financial assets and liabilities under leases

4) Demand deposit liabilities

5) Financial instruments at least partly classified in equity

5.2 Election of the FVO

The decision whether to elect the FVO is made___________________.

   1) The decision ordinarily is made ___________________ and only for an ____________.

   2) The FVO generally _______ be applied to _______________ in a single transaction.

The decision whether to elect the FVO is made IRREVOCABLY AT AN ELECTION DATE (UNLESS A NEW ELECTION DATE OCCURS).

   1) The decision ordinarily is made INSTRUMENT BY INSTRUMENT and only for an ENTIRE INSTRUMENT.

   2) The FVO generally NEED NOT be applied to ALL INSTRUMENTS in a single transaction.

*BUT an instrument that constitutes on legal contract is indivisible for FVO purposes.

5.2 Election of FVO

Election dates include:

1) Initial recognition of an eligible item

2) Making an eligible firm commitment

3) A change in accounting for an investment in another entity b/c it becomes subject to the equity method

4) Deconsolidation of a subsidiary or a variable interest entity (with retention of an interest)

5) An event that causes financial assets previously measured at FV through earnings b/c of a specialized accounting principle no longer qualify

6) An event requiring FV measurement when it occurs but not subsequently (excluding recognition of nontemporary impairment, e.g., of inventory or long-lived assets)