A liability (financial liability) is typically classified and measured at amortized cost. However, a liability may also be classified and measured at fair value through profit and loss (FVTPL) if it is designated by an entity at FVTPL in the specific case where such designation produces more relevant information by eliminating or significantly decreasing an accounting mismatch that is usually associated with the use of different bases for measurement (of assets and liabilities) and recognition (of their gains/ losses). Accounting mismatch creates measurement or recognition inconsistencies which translate into inability to have a proper matching for items on both sides of the balance sheet.
Better relevancy of information (resulting from designation at FVTPL) may also be attained when a set of financial liabilities, or financial assets and financial liabilities, is managed and its overall performance is based on a fair value evaluation (in accordance with a documented risk management policy/ investment strategy).
Designation at FVTPL can be optional in specific cases such as a hybrid financial instrument consists of a financial liability host and a hosted element (an embedded derivative), where the two parts are not closely related.
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