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IFRS 13: When Counterparty Risk Hits Your Bottom Line

by François Masquelier, Head of Corporate Finance and Treasury, RTL Group, and Honorary Chairman of the European Association of Corporate Treasurers

IFRS 13 ‘Fair Value Measurement’ came into effect from January 2013. It requires us to take into account counterparty and credit risk, part of non-performance risk, in the revaluation of financial hedging instruments. Some important questions need to be addressed, such as: How do we calculate this risk? What reports will have to be provided and disclosed? And finally how to simulate the potential impacts on the income statement? If we think only about IFRS 9 we are forgetting this other standard applicable now.

IFRS 13, the one we forgot?

Through focusing on the future IFRS 9 (which will not become effective until January 2015), we might almost forget IFRS 13 coming into force, and one of its major impacts on treasurers (yet another one). Treasurers sometimes focus on certain problems, such as OTC derivatives and the risk of being required to post cash as collateral, to the point of forgetting others. They are so obsessed with certain measures that they see as unfair (rightly) that they forget the mandatory aspect of reporting to ESMA via trade repositories. This latter measure nevertheless comes into force as of 2013. It seems to us that we should first focus on current priorities and ensure we can fulfil our obligations as soon as they come into force. IFRS 13 is now on our list of reports to be provided, to comply with all the new accounting regulations and standards. This accounting standard demands a minimum of thought to assess the scope of information to be provided, how to produce it and extract it from the computer systems and finally to understand the potential impact on the company’s balance sheet and income statement. IFRS 13 was published in November 2006 (that long ago). It is largely inspired by its US cousin SFAS 157 in the measurement principles that it adopts.