A dumb question on Mark to Market accounting

[muscleman]

Sorry to ask this seemingly dumb question. I did a bunch of Google search but can't find the answer.

Does anyone know if Mark to Market account impact revenues in anyway? I read a few explanations and none mentioned revenue impact.  :-[

Is there any entry like "trading losses" or "trading gains" on the income statement?

[Phaceliacapital]

I think it depends on the type of security, some go through I/S others go through comprehensive I/S.

 

Does this help:

 

[muscleman]

I think it depends on the type of security, some go through I/S others go through comprehensive I/S.

 

Does this help:

 

 

Thank you!  ;D

[Patmo]

Sorry to ask this seemingly dumb question. I did a bunch of Google search but can't find the answer.

Does anyone know if Mark to Market account impact revenues in anyway? I read a few explanations and none mentioned revenue impact.  :-[

Is there any entry like "trading losses" or "trading gains" on the income statement?

 

See IAS 39 for rules on recognition of financial instruments for IFRS. http://www.iasplus.com/en/standards/ias/ias39

 

The following two sections are probably the most relevant to you:

 

Financial assets at fair value through profit or loss. This category has two subcategories:

 

Designated. The first includes any financial asset that is designated on initial recognition as one to be measured at fair value with fair value changes in profit or loss. Held for trading. The second category includes financial assets that are held for trading. All derivatives (except those designated hedging instruments) and financial assets acquired or held for the purpose of selling in the short term or for which there is a recent pattern of short-term profit taking are held for trading. [iAS 39.9]

 

Available-for-sale financial assets (AFS) are any non-derivative financial assets designated on initial recognition as available for sale or any other instruments that are not classified as as (a) loans and receivables, (b) held-to-maturity investments or © financial assets at fair value through profit or loss. [iAS 39.9] AFS assets are measured at fair value in the balance sheet. Fair value changes on AFS assets are recognised directly in equity, through the statement of changes in equity, except for interest on AFS assets (which is recognised in income on an effective yield basis), impairment losses and (for interest-bearing AFS debt instruments) foreign exchange gains or losses. The cumulative gain or loss that was recognised in equity is recognised in profit or loss when an available-for-sale financial asset is derecognised. [iAS 39.55(b)]

 

There are other classifications and naturally, millions of rules/exceptions, but these should be most relevant to your question. IFRS 9 will replace IAS39 in 2018, and makes things a little simpler (See http://www.iasplus.com/en/standards/ifrs/ifrs9 for full standard):

Equity instruments

All equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value changes recognised in profit or loss, except for those equity investments for which the entity has elected to present value changes in 'other comprehensive income'. There is no 'cost exception' for unquoted equities.

 

'Other comprehensive income' option

If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at FVTOCI with only dividend income recognised in profit or loss. [iFRS 9, paragraph 5.7.5]

 

And then FASB (GAAP) JUST issued an update effective sometime in 2017 in relation to this topic. I'm tired of writing this post so here are just some quick links:

http://www.fasb.org/jsp/FASB/Page/SectionPage&cid=1176156316498 for a list of ASU's (accounting standard updates), the one you are looking for is the only one issued in 2016.

http://www.pwc.com/us/en/cfodirect/publications/in-brief/fasb-classification-measurement-final-standard.html An explanation of this update by PWC.

And then https://asc.fasb.org/ for the current standards, you can create a free account and access all of the FASB standards. For Financial Instruments go Broad Transactions -> 825 -> 10.

 

The GAAP standards seem rough to make sense of... See this PWC quote for what it appears will happen with this new update:

All equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting) will generally be measured at fair value through earnings. There will no longer be an available-for-sale classification (changes in fair value reported in other comprehensive income) for equity securities with readily determinable fair values.

[Patmo]

Also I highly doubt this ever goes through revenue, it should be a separate line item. Maybe there's exceptions, like maybe if it's the business' primary operation to hold FI's or something, I don't know.