The Treasurer April 2005

Treasurers must sort out their arguments over IAS 39

Treasurers remain deeply concerned about the impact of IAS 39 Financial Instruments: Recognition and Measurement. Of course they are not the only ones: other financial professionals, bankers, equity analysts and even politicians have all expressed their worries over the standard that the International Accounting Standards Board (IASB) is imposing on companies.

From the treasurers’ perspective doubts about IAS 39 are nothing new. Indeed the March 2004 issue of The Treasurer reported on an ACT roundtable brought together to discuss the effect of the accounting standard on companies. That roundtable was generally supportive of the standard. Of course the company has to provide proper information to shareholders and account properly for the transactions which it undertakes. Directors also have to ensure they have proper internal controls in place to minimise risk.

Accounting and risk management should never conflict, but with IAS 39 that is exactly what is happening. The ultimate aim of IAS 39 is to improve the transparency of the accounts of companies that hold and use derivatives. No treasurer could argue against such a motherhood and apple pie objective. However it is becoming increasingly apparent that an unintended consequence of IAS 39 might be to encourage companies to actually ditch hedging. As one treasurer put it: “Such a move is the accounting tail wagging the commercial dog.” The idea that treasurers might be complicit in increasing their companies’ risk by actually advocating stopping using hedging instruments seems absurd. And such an idea would surely be abhorrent to Sir David Tweedie, the IASB Chairman. One of his major themes over the years is that accounts should reflect the underlying economic reality on which they purport to report.

If treasurers believe that they have genuine issues with IAS 39, or even recommendations on how to improve the standard, then they have the perfect platform on which to express their views. Sir David is one of the keynote speakers at The Treasurers’ Conference which takes place next month. And he won’t be turning up just to talk. Anyone who has followed his career as a standard setter over the years will know that he is no stranger to controversy and he relishes a barnstorming argument. So if treasurers want to challenge the IASB chief over IAS 39 they had better be masters of their brief and 100% convinced of their arguments. But from the strength of opinion that we hear from many treasurers, they should be well up for it. It should be fascinating.

See Opinion page 14.


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