This audio will introduce you to accounting for investments using the fair value option.
An entity may elect to value its securities using the fair value option. Such election is made on instrument to instrument basis. It can be elected on the date an investment is first recognized, or when the securities no longer qualify for the equity method of accounting for investments. If the entity elects the fair value option for reporting available for sale securities or held to maturity securities, the securities will be revalued to the fair value, and any gains or losses are recorded in the earnings for the period. Also, if the entity elects the fair value option for reporting securities, that would otherwise be reported using the equity method, the securities shall be revalued, and any gains or losses shall be recorded in the earnings for the period. If fair value option is elected for instruments that would normally use the equity method, it must be applied to all interests in that entity. Note that the rules of cash flow continue to apply for determining the classification of a purchase or sale of security on the statement of cash flows. Also note that additional disclosures in the notes to financial statements are required if the fair value option is elected.