What happens where CTA09/S645 conditions are not met

CTA09/S645 (CFM55220) will not apply if the holder of a convertible security does not adopt ‘bifurcation’ treatment in its accounts.

There are a number of reasons why this might not be the case.

Perhaps the most likely reason is that the convertible is accounted for, under GAAP, at fair value through profit and loss. This may be because the company applies Section 12 of FRS102, or IFRS9. This treatments is also permitted where IAS 39 / FRS 26 applies, for example if it is economically the hedged item in a fair value hedge.

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