To eliminate this accounting mismatch, SABT Ltd may choose to designate the bank loan on initial recognition on 31 December 2018 as at FVTPL. If this option is chosen, the loan willbe intially recognised at its fair value of R5 000 000 and ‘the transaction costs of R120 000 will be expensed through profit or loss. Subsequently, the loan will be measured at fair value with any gains or losses being recognised in profit or loss, in line with the accounting treatment of the investment properties it was used to finance. The contractual cash flow and business models are there simply to classify financial assets and financial liabilities. The ‘accounting mismaten is not related to the classification process directly but is a consequence of the classification process. In other words, if one follows the IFRS 9 classification process, the outcome will be a debit and a credit. Where the debit and credit ate clesstfied differently, which results in different measurement bases and diferent profit or loss implications, you have identified a potential accounting mismatch. In order to eliminate or reduce these differences, management may choose to measure the debit and the crecit on the fair value through profit or loss basis. The importance of the classification process cannot be underestimated as if the clessification is wrong the ability to identify an accounting mismatch is negligible. If all financial assets and financial liabilities could be designated fair value through profit or loss there would never be an accounting mismatch, However, the classification process contains @ mix of a number of classification bases where fair value through profit or loss will never be allowed, thereby creating the potential for the accounting mismatch. AUTHOR | Dr Steven Firer, Technical Expert ~ Nexia SABT: Centurion Office