Accounting for Investments, Volume 2: Fixed Income Securities and Interest Rate Derivatives—A Practitioner's Guide

SUMMARY

• Fixed income security refers to any type of investment that yields a regular or fixed return. It is an investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity. In a variable income security, payments change based on some underlying benchmark measure such as short-term interest rates. However, in this and subsequent chapters, by fixed income securities we mean debt securities that yield a regular return in the form of interest. The terms “debt securities” and “fixed income securities” are used here interchangeably.
• A debt security is defined as “any security representing a creditor relationship with an enterprise.”
• The term “debt security” includes, among other items, U.S. Treasury securities, U.S. government agency securities, municipal securities, corporate bonds, convertible debt, commercial paper, all securitized debt instruments, such as collateralized mortgage obligations (CMOs) and real estate mortgage investment conduits (REMICs), and interest-only and principal-only strips.
• A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Investments in equity shares are a form of financial asset.
• Investments in debt securities are classified as either fair value through profit and loss or as available-for-sale securities or held-to-maturity investments.
• IFRS 9 is the first part of Phase 1 of the IASB’s project ...