The Treasurer July-August 2004
IAS 39 – ON ITS WAY TO FULL ENDORSEMENT?
The month of July looks set to be decision-time for IAS 39, which after a long and turbulent journey, is still far from home, adding to the uncertainties faced by corporates and their treasurers over its adoption. Last month, IAS 39 hit a major stumbling block when four EU member states – France, Italy, Spain and Belgium – rejected proposals in the standard to ‘fair value’ derivatives – particularly relating to an ‘effective’ hedge.
Questions remain over whether the timeframes left are sufficient for the new standard’s full endorsement, and companies’ adherence to its requirements in their consolidated accounts as of January 2005. At the time of writing, the next important date on IAS 39’s calendar was 9 July – a scheduled meeting of the Accounting Regulatory Commission (ARC), during which many industry commentators believe the EU may present a “formal endorsement proposal” for the standard. The ARC must then vote on this, with a qualified majority in favour required for it to go through. A combined stand by France, Italy, Spain and Belgium against the standard would be insufficient to block it. However, at the time of writing, little more than this seemed clear.
The European Financial Reporting Advisory Group (EFRAG) – a key consultative body on the issue – advised me that it would offer its “on the balance” support of IAS 39 prior to 5 July to the EC. However, whether or not the EU takes this, and the positive feedback of other member states, and makes a “written statement to adopt”, was still being questioned – even by sources close to the heart of the matter.
At the same time, intermediate solutions – such as partial adoption of IAS 39 – have continued to be mooted as representing another route forward. A partial implementation of IAS 39 could resolve the concerns of opposing member states. It would possibly ease European banks’ fears about the impact the new hedging requirements will have on their balance sheet disclosure, and consequently, their earnings per share. A partial implementation may also resolve issues relating to time constraints, with at least elements of the standard being applicable alongside the rest of the IAS family early next year.
The ACT’s position in relation to IAS 39 remains that it is better to have a standard governing the recognition and measurement of financial instruments which, “may be slightly defective,” than not to have a standard at all.
For this reason, one of our prime objectives over the past few weeks has been to voice ongoing support to the EC for a formal endorsement proposal for IAS 39. Should the standard not come into being, then everything it can possibly achieve may become seriously mitigated. Those dependent on high-quality financial reporting may still continue to regard the information provided to them by corporates as potentially inconsistent and lacking in transparency.
A lot would certainly be lost without IAS 39, and for this reason we must all hope for its speedy adoption by the EU. Only in this event, will corporates be able to move forward in its implementation with certainty.
LIZ SALECKA
Editor
marketwatch NEWS (TT JulAug04 p6-8)
The ACT celebrates 25 years of achievement
The ACT celebrated its 25th anniversary last month with a special event at the Plaisterers Hall in London, which was attended by more than 250 members including 19 expresidents and past Council chairmen and three former director generals/chief executives.
International Bonds (TT JulAug04 p9-10)
These are a selection of bonds announced recently. The details, updated to the middle of last month, were supplied by Thomson Financial
Securities Data and other sources.
Positive Energy (TT JulAug04 p11-12)
If there has to be a full-scale oil crisis, with prices at perhaps 
80-plus per barrel, then 2004 is probably one of the best years for it to happen.
Traders behaving badly (TT JulAug04 p14-16)
Breakdowns in internal controls can cost treasurers dearly. Huge losses suffered by AIB’s subsidiary Allfirst Financial and National Australia Bank as a result of unauthorised dealing demonstrate why. Martin O’Donovan reports.
Understanding Cash Management Trends (TT JulAug04 p17)
For the sixth year running, the Association of Corporate Treasurers (ACT) and JPMorgan Fleming Asset Management will be conducting their International Cash Management Survey. Over the past five years, both organisations have worked in unison to provide an insight into cash management practices.
Mortal combat (TT JulAug04 p18-20)
At a time when many UK pensions schemes have highprofile deficits, treasurers are under increasing pressure to become involved in understanding the risks associated with final salary schemes. Naturally, they often focus on areas that play to their strengths, particularly the relationship between the assets and liabilities in the scheme, often involving the hedging of interest and inflation risks and asset allocation decisions.
Cashing in on banking relationships (TT JulAug04 p21-22)
By what measures should a corporate treasurer decide on the best bank to use for cash management? The answer lies in the basic working definition of cash management (CM), which is at the heart of the banker-client relationship.
MMFS – a faster route to your cash? (TT JulAug04 p23-25)
The money market fund (MMF) industry is celebrating becoming a $200bn business (see Figure 1 on page 24).What makes this achievement so impressive is that it has grown from almost nothing in 1995 and continued to grow through one of the biggest recessions in recent asset management history.
Banking on your own business (TT JulAug04 p26-28)
According to a 2002 report by Killen & Associates, a company with $1bn in revenues can waste as much as $32m a year through inefficient working capital and processing functions. It is not surprising, therefore, that firms are increasingly focusing on reducing idle cash and rationalising processes, with many adopting payment factories and in-house banks to achieve just that.
A future built on pioneers' vision (TT JulAug04 p30-32)
ACT Chief Executive Richard Raeburn has watched the ACT grow since its conception in 1979. He looks at how it has developed and outlines what he believes is vital to its continued success.
Flying the flag for treasury (TT JulAug04 p33-35)
Niall FitzGerald has had an outstanding career in finance and treasury, culminating in his appointment as CEO and Joint Chairman of Unilver, a world-leading provider of branded and packaged goods. He talks to Liz Salecka about how the treasury profession has developed over the last 25 years, and the important contribution made by the ACT in flying its flag.
The way we were (TT JulAug04 p36-37)
As part of the ACT’s silver anniversary, we are reproducing an article from the December 1982 issue of The Treasurer, by Sir Jasper Hollom, KBE, in which he gave an overview of the development and achievements of the ACT in its first three years. He mentioned the harsh economic climate in which the association had established itself – pertinent, considering the tough economic environment in which the ACT operates today.
Technical Update (TT JulAug04 p38-42)
ACT guide to LMA loan documentation
The ACT has announced the publication of a Guide to the LMA Loan Agreement, which has been prepared by Slaughter and May. The guide, which is freely available on the ACT website, has just been updated to cover the recent revisions to the LMA Loan Agreement.
More than just a treasurer? (TT JulAug04 p44-45)
The role of the treasurer in the management of a company's financial risks and cashflows is well recognised, but a wider, more strategic role is not always so well-developed and understood. Treasurers’ involvement in their organisations’ corporate and financial strategy could be greater and their seniors should encourage them to look beyond their formal responsibilities.
Treasury gets back on the ladder (TT JulAug04 p46-48)
The market for treasury professionals is finally showing signs of recovery with demand for lower to mid-level treasury positions rising – particularly treasury accountants with IAS 39 experience. And demand for senior corporate treasurers has also been stimulated by increased corporate activity – a trend which is starting to impact salary levels and the provision of bonuses and other incentive schemes.
ACT exam results (TT JulAug04 p49-50)
David Westby of the ACT congratulates the students who passed the latest round of AMCT, MCT and CERT ICM exams. For those who did not pass, he pledges the Association’s support in their continued efforts to make the grade.
Why choose treasury? (TT JulAug04 p55)
There are few roles in finance that will give you the opportunity to have as significant an impact on your company as that of a treasurer, says Matt Mattheou of Pure Recruitment.
The ACT team: the people you deal with (TT JulAug04 p56)
As we are marking our 25th anniversary in this edition, I thought it would be a good time to write briefly about the people that work at the ACT. Many readers will be familiar with my colleagues here, especially those of you that have come through our professional qualifications, those that have worked with or participated in our events and publications, and of course those that have been involved in our technical work.
