28 August 2008
I have a question on IAS 39 – Financial Instruments. How can an auditor tell whether a financial asset is available for sale or held for trading?
Generally, when you see that an asset is beeing traded very often, this is an indication that it should be classified as held for trading. However IAS 39 doesn’ t provide us with a “rule of thumb” in order to distinguish between available for sale and held for trading portfolio.
I do not know what you mean with held for sale, that sounds also like trading, the distinction is held for trading and held to maturity. Important is what is the intention of the company, what is the business reason for contracting this transaction etc. held for trading would mean that the position as at balance sheet date will be sold/changed after a short(er) period after balance sheet date, or if not than it is logical why a trade is not yet realized
Sorry available for sale is anything not being classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss.
Actually available for sale is an open category that means that if company did not decide where to classify it can be classified as available for sale. However for held for trading investments are bought to resell for short term gain rather to earn dividend but available for sale normally includes investment which are not held for short term gain rather which are carried for earning long term capital gain or dividend income that means it depends on the intenions of the entity but unquoted investments are always classified as available for sale.
Hope i have made you understand a little bit
In India the classification between HTM and AFS is made at the time of making the investment. Hence, from Board resolution before purchase of investment the probble classification is amde.
The Cloassification issue depends upon how the managment of the company takes particular investments.
In general unquoted investements or investments in private non listed company will be AFS. Further few of the quoted stocks can also fall into this category but for that one need to discuss with the managment and also see the prior year calsifciations