The Treasurer November 2009

Looking for the final score

The hue and cry over accounting for financial instruments has been drowned out over the last 12 months by the more general but louder anguish over the financial crisis. But that does not mean that the problems with the IAS 39 standard have been forgotten by users or the standard setters.

As Martin O’Donovan points out in this month’s Technical Update (page 08), the International Accounting Standards Board (IASB) is dashing along – or with as much speed as any regulator can muster – with its bid to produce a revised IAS 39. The difference now is that accounting for financial instruments is just part of a crowded agenda bequeathed by the financial crisis and the G20 for the standard setters to deal with.

Sir David Tweedie, chairman of the IASB, spoke to the European parliament’s Economic and Monetary Affairs committee earlier this autumn to explain how the financial crisis has altered the priorities. In terms of financial instruments the IASB’s current priority is to look at classification, measurement and related impairment issues and have the accelerated portion of the project completed for use by the end of the year. But fast work of itself is not enough; it needs to be good work that gives greater confidence to stakeholders that we are edging closer to a workable, coherent and sensible solution on financial instruments. The IASB says it is checking all is well and that it remains on track through meetings with investors, prudential supervisors, capital markets and other stakeholders across the globe.

A key aim is to reduce significantly the complexity of financial instruments accounting, a priority reinforced by the April 2009 G20 Leaders Summit in London. To provide transparency and reflect economic reality, the IASB says its emphasis has been to define in a balanced and transparent way the criteria for classifying instruments to be measured at cost and fair value—not to increase or decrease arbitrarily the use of fair value. The IASB says that any decrease or increase of fair value will depend on a particular institution’s business model and holdings. Ultimately, whether it reduces overall complexity is something that preparers (such as treasurers, who actually have to make the standard work) rather than politicians will be best judges of.

But before the revised standard is used in anger it is clear that problems remain over financial instruments. Despite the quest for international accounting harmony, the IASB and the US Financial Accounting Standards Board (FASB) appear to be drifting apart on financial instruments with questions being raised over the meaning of the wording adopted by the two boards. We want high-quality, understandable, quickly produced and internationally agreed standards. At the moment a perfect score is far from a foregone conclusion.

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