November 2000

IASC issues guidance on financial instruments

The International Accounting Standards Committee (IASC) recently issued two guidance documents on implementing IAS 39, Financial Instruments: Recognition and Measurement:

  • IAS 39 Implementation Guidance Questions and Answers, which contains 100 questions and answers that have been approved for issuance in final form. The Q&A were issued for public comment in three batches in May, June, and July 2000.
  • Fourth Batch of Proposed IAS 39 Implementation Guidance Questions and Answers, which contains 70 additional Q&A. The comment deadline was November 15.

    Both guidance documents are available from the IASC website,

    IAS 39 establishes principles for recognizing, measuring, and disclosing information about financial assets and financial liabilities, including derivatives. The standard is effective for financial statements for fiscal years beginning on or after January 1, 2001.

    Issues addressed in the implementation guidance include applying IAS 39 to financial reinsurance contracts, credit derivatives, financial guarantee contracts, and commodity contracts; defining derivatives and originated loans; accounting for embedded derivatives, "regular way" transactions;, transfers of financial assets and portions of financial assets (such as securitizations), and transaction costs; fair value measurement considerations; applying the effective interest method; classifying financial assets as held to maturity; impairment issues; hedge accounting issues (such as hedge accounting considerations when interest rate risk is managed on a net basis, hedging of risk components); disclosures about financial instruments; applying the transition requirements in IAS 39; and the interaction between IAS 39 and other IASs (such as IAS 21, which addresses the effects of changes in foreign exchange rates).

    "IAS 39 significantly affects corporate financial reporting by establishing for the first time a single set of rigorous and consistent principles for recognizing and measuring financial instruments under IASC standards," said John T. Smith, chair of the IAS 39 Implementation Guidance Committee and a partner of Deloitte & Touche.

    "IAS 39 introduces a whole new approach to accounting for trading, investment, and hedging activities involving financial instruments," added IASC Technical Director James S. Saloman. "Therefore, it is not surprising that companies and their auditors have a lot of questions on how to most effectively implement IAS 39."

    The implementation guidance was prepared by the IASC staff and approved by the IAS 39 Implementation Guidance Committee.

    The members and observers of the committee, all experts in financial instruments, have various backgrounds in accounting standard setting, auditing, banking, and banking and securities regulation.

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