The change in the classification of a financial asset due to a change in an entity’s business model (BM) or accounting methods to better reflect the reality of the transaction involving such an asset. Reclassification is associated with a specific date known as reclassification date. For example, if an entity has reclassified from the “amortized cost” category to the “FVTPL” category, fair value will be measured at reclassification date, with the difference from carrying amount being recognized in profit and loss. The accounting impact of a reclassification may, or may not, prompt for restatement of recognized gains, losses or interest, depending on the categories involved in the process. For example, reclassification from amortized cost to FVOCI does not result in an adjustment to the effective interest rate associated with a financial asset. While in the opposite scenario (reclassification from FVOCI to amortized cost), cumulative gains/ losses in the other comprehensive income will be adjusted against the fair value of the asset at reclassification date.

The reason for reclassification has to be disclosed either on the financial statements or by means of an explanatory note (footnotes). For example, an entity may disclose in an explanatory note that a specific amount of its long-term debts has been reclassified to short-term debts during the financial period because it decided to pay off that amount of debt early, rather than over the originally planned maturity.