Last update 22/08/2019
A purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.
A regular way purchase or sale of financial assets as such means trading in long positions on an exchange.
IFRS 9 B3.1.5 and IFRS 9 B3.1.6 address the recognition and derecognition of financial assets traded under regular way purchases and regular way sales of long positions. The regular way exceptions are not applicable to short sales of securities, as a result of which such short sales are accounted for as derivatives and are measured at fair value with changes in fair value recognised in profit or loss.
A regular way purchase or sale of financial assets is recognised using either trade date accounting or settlement date accounting.
The trade date is the date that an entity commits itself to purchase or sell an asset. Trade date accounting refers to:
- the recognition of an asset to be received and the liability to pay for it on the trade date, and
- derecognition of an asset that is sold, recognition of any gain or loss on disposal and the recognition of a receivable from the buyer for payment on the trade date. Generally, interest does not start to accrue on the asset and corresponding liability until the settlement date when title passes.
The settlement date is the date that an asset is delivered to or by an entity. Settlement date accounting refers to:
- the recognition of an asset on the day it is received by the entity, and
- the de-recognition of an asset and recognition of any gain or loss on disposal on the day that it is delivered by the entity.
Accounting for Changes in Fair Value
When settlement date accounting is applied an entity accounts for any change in the fair value of the asset to be received during the period between the trade date and the settlement date in the same way as it accounts for the acquired asset.
In other words,
- the change in value is not recognised for assets measured at amortised cost, i.e. amortisation itself take care of this.;
- it is recognised in profit or loss for assets classified as financial assets measured at fair value through profit or loss; and
- it is recognised in other comprehensive income for financial assets measured at fair value through other comprehensive income in accordance with IFRS 9 4.1.2A and for investments in equity instruments accounted for in accordance with IFRS 9 5.7.5.
Consistency
An entity shall apply the same method consistently for all purchases and sales of financial assets that are classified in the same way in accordance with this Standard.
For this purpose asset, those are mandatorily measured at fair value through profit or loss, form a separate classification, from assets designated as measured at fair value through profit or loss. In addition, investments in equity instruments accounted for using the option provided in paragraph 5.7.5 form a separate classification.
Further, it should be noted that a, contract that requires or permits net settlement of the change in the value of the contract is not a regular way contract. Instead, such a contract is accounted for as a derivative in the period between the trade date and the settlement date.
Benefits of Trade Date Use
Using trade dates in accounting ensures that a company has an up-to-date record of what monies will be coming into, or going out of, its accounts.
Regular way purchase or sale
Regular way purchase or sale
Regular way purchase or sale Regular way purchase or sale Regular way purchase or sale Regular way purchase or sale