It stands for fair value option; an option or alternative for an entity to use fair value (FV) as a basis for recording its financial assets/ instruments and financial liabilities, if eligible, at the time of acquisition or issuance, with value changes recognized in profit or loss (income statement)- that is fair value through profit and loss (FVTPL). This option can also be selected even if the financial asset or financial liability would ordinarily be measured at amortized cost, on the condition that fair value can be measured with a reasonable degree of reliability.

Under relevant international accounting standards, fair value option allows an entity to designate, at initial recognition, a financial instrument as measured at FVTPL if such a recognition would eliminate or significantly reduce the so-called recognition inconsistency, i.e., “accounting mismatch” (between asset and liability sides) that would otherwise materialize from measuring items or recognizing their gains and losses on various accounting bases. Such eligibility criteria vary from a standard setter to another, globally.