Given the movement toward acceptance of IFRS in the U.S., a discussion about other-than-temporary impairment on securities would not be complete without a discussion of the IFRS requirements.
IFRS requirements for recognizing impairment on securities are specified in International Accounting Standard no. 39, Financial Instruments: Recognition and Measurement. IAS 39 addresses a wide range of accounting issues relevant to financial instruments, including securities, loans, derivatives and liabilities.
IAS 39 requires entities to assess whether impairment exists at each balance sheet date. While the decision to recognize an impairment loss is also based on subjective criteria, the IFRS impairment rules are quite different from U.S. GAAP. For example, under IFRS, the “other-than-temporary” concept is not considered, assets may be evaluated in groups and there is a different threshold for recognizing impairment. Specifically, paragraph 59 indicates that an impairment should be recognized only if “there is objective evidence of impairment as a result of one or more events” and the “loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.”
In addition, IAS 39 permits an entity to use a valuation reserve account when recognizing impairment and to reverse recognition of an impairment loss in a subsequent period, if certain criteria are met. These rules are considerably less stringent than current U.S. GAAP requirements.