On your marks...for IAS 39 (TT Dec04 p27-29)

UK-listed corporates will soon have to report under IFRS. Many are still making the necessary changes to their systems and financial reporting processes before the start date of 1 January 2005. The EU’s recent decision to adopt a carved-out version of IAS 39 has made the transition to IFRS more difficult for many companies. It is also unclear whether the DTI will allow UK companies to use their own concept of a ‘true and fair override’ and apply full IAS 39 and the Fair Value Option.

UK companies with listings in the US are also in the dark over how they will deal with dual reporting requirements. UK corporates adopting IAS 39 must impress on stakeholders that business risks and financial risks are managed appropriately. Traditional risk management strategies do not fit in with the hedge qualification criteria laid down in IAS 39. This could lead to greater balance sheet volatility than when accounts were prepared under UK GAAP. Companies need to adopt a strategic framework for managing risk and use the appropriate tools to aid their internal decision-making process.