Chartered Financial Analyst (CFA) Practice Exam Level 2

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What does the term "FVOCI" stand for in investment classification?

Fair Value through Other Comprehensive Income
Fixed Value on Cash Outcomes
Fair Value of Current Investments
Financial Value Operating Cash Inflow

The correct answer is: Fair Value through Other Comprehensive Income

The term "FVOCI" stands for Fair Value through Other Comprehensive Income. This classification is part of the International Financial Reporting Standards (IFRS) framework, primarily under IFRS 9, which governs how financial instruments are categorized and measured. When an investment is classified as FVOCI, changes in its fair value are recognized in other comprehensive income (OCI), rather than being reflected directly in profit or loss. This means that while the investment can still be fair valued, the fluctuations do not impact the income statement until the asset is sold. This is particularly applicable to equity instruments and certain debt instruments where the holder does not intend to trade them in the short term. By categorizing investments this way, financial statements can provide a clearer picture of a company's financial performance and position without the volatility that could arise from reflecting fair value changes in profit or loss. This classification helps investors and stakeholders assess the long-term value and potential of the asset without the noise of short-term market fluctuations.