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Son of IAS 39

by François Masquelier, Chairman, ATEL

Many treasurers have forgotten that in January 2011 we will celebrate the 10th anniversary of IAS 39. Celebration or funeral? In the last quarter of 2010, the IAS Board is due to publish its new hedge accounting standard. It will be the third and last part of the complete revamp of IAS, which has transformed the life of we corporate treasurers. What has changed since 1 January 2001? It has revolutionised the whole hedging approach of corporates. Another question is  whether the overhaul of  IAS 39 is a revolution or a simplification.

Fair value in the firing line

The butt of frequent criticism in recent months, fair value has been singled out by shareholders and banks alike as the perfect scapegoat for the financial crisis with which we have been confronted. But we know, of course, that the responsibility lies elsewhere, albeit shared rather than attributable to a single cause. Notwithstanding all the criticism, fair value is actually enshrined in what will be the future standard on financial instruments, the son of IAS 39. Like father like son, as they say, and this proverb might very well apply in this case too. 

The new measure’s effective date of entry into force will be 1 January 2013, with early adoption possible from the end of 2009.

Despite being divided into three separate phases, this overhaul of IAS 39 in relation to financial instruments is on the right track. The IASB (International Accounting Standards Board) had planned to publish its first and final ED (Exposure Draft) in the first quarter of 2010 (a trilogy-type approach code-named IFRS 9, the first part was published on 12 November 2009 – www.iasb.org/News/). IFRS 9 makes use of a unique approach to establish whether an asset is to be measured in terms of its amortised cost or its fair value, thereby replacing the various rules from IAS 39. The approach adopted by IFRS 9 centres on the manner in which the company manages its financial instruments (its overall business model) and the contractual cash flows which characterise the financial assets. Also opting for a unique method to be used for impairments, the new measure’s effective date of entry into force will be 1 January 2013, with early adoption possible from the end of 2009.