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