This category has two sub-categories:
held for trading (HFT) and
designated.
As the name implies, the trading category is for any
financial asset (or liability) held (or incurred) principally for
the purpose of selling or repurchasing it in the short term; or
that is part of a portfolio of identified financial instruments
that are managed together and where there is a recent actual
pattern of short-term profit-taking. Thus past practice can
determine whether something is a trading item or not.
The HFT category in IAS 39 should not be confused with the
tax concept of a company holding a financial asset or liability for
the purposes of its trade. For example, a bank makes loans to
customers as part of its trade. However, such loans would not be
HFT assets (unless the bank intended to sell the portfolio of loans
to produce a short-term profit); they would be classified as "loans
and receivables" (see
CFM16135).
All derivatives are deemed to be held for trading other than
those that are financial guarantee contracts or designated and
effective as hedging instruments. This includes derivatives that
are embedded in a host contract and are separately accounted for
('bifurcated') because they are not closely related to the host
contract (
CFM16105).
HFT items are stated at fair value with changes therein
flowing through the income statement. If the fair value of any such
assets cannot be reliably measured then the asset is stated at
amortised cost.
A company may designate a financial asset (or financial
liability) to be measured at fair value, with fair value changes
going through profit and loss. However, in June 2005 the IASB
issued an amendment to IAS 39, effective for accounting periods
commencing after 1 January 2006, though earlier adoption is
encouraged. This amendment restricts the assets and liabilities
that can be so designated.
CFM16120a gives further details of the
restrictions under the IAS 39 amendment.
CFM16120b gives details of how these
changes are reflected in UK GAAP (FRS 26).
