Fair Value Through Other Comprehensive Income (FVOCI)

Brief Definition

Fair Value Through Other Comprehensive Income (FVOCI) is a classification for certain financial assets under the International Financial Reporting Standards (IFRS). When an asset is designated as FVOCI, any changes in its fair value are recorded in “Other Comprehensive Income” (OCI) rather than directly in the profit and loss statement.

Further Explanation

Fair Value Through Other Comprehensive Income (FVOCI) is a classification for certain financial assets under the International Financial Reporting Standards (IFRS). When an asset is designated as FVOCI, any changes in its fair value are recorded in “Other Comprehensive Income” (OCI) rather than directly in the profit and loss statement. This approach is often used for equity investments and certain debt instruments where the company intends to hold the investment to collect cash flows and also sell it if advantageous.

Example:
A company invests in shares of another company. If the fair value of these shares increases by $10,000, this gain is reported in the Other Comprehensive Income section of the financial statements rather than affecting the net income directly. If the shares are eventually sold, the accumulated gains or losses recorded in OCI are then transferred to retained earnings.