In the existing IAS 39 the availability of the fair value option provided a welcome degree of flexibility for entities as a form of hedge accounting outside of the strict rules on classifications of hedges.
By recording both financial assets and liabilities at fair value through the P&L, which accords with the general principles of IAS39 of fair valuing financial instruments, there is a degree of natural offsetting even if the movements in the value of asset and liability are only partially correlated. Additionally if entities did not wish to spend the time and effort in meeting the extensive requirements for documenting and testing hedge accounting they could simply apply fair value.
We note that the circumstances when this flexibility is available have been severely restricted under the proposed amendments in your April 2004 consultation, and therefore we do not support your Exposure Draft.
We believe that the criteria required to be satisfied in order to use the fair value option (para 9(b)) are unnecessary and that the standard should remain in its original form.
