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Financial Instruments: Replacement of IAS 39

IASB meeting summaries and observer notes

 IASB September 2009



The Board is addressing the replacement of IAS 39 Financial Instruments: Recognition and Measurement in three main phases:

  • Phase 1 - Classification and Measurement;
  • Phase 2 - Impairment (methodology); and
  • Phase 3 - Hedge Accounting.

Phase 1 - Classification and Measurement

In July 2009 the IASB published an exposure draft (ED) Financial Instruments: Classification and Measurement. At this meeting the Board considered an overview of comments received on the ED, at the public round table meetings held in Tokyo, London and Norwalk (USA), and at the recent meeting of the IASB's Financial Instruments Working Group. The Board also considered feedback received from the extensive outreach programme that has been in place during the past few months. No decisions were made.

Phase 2 - Impairment (methodology)

In June 2009 the IASB posted on its website a Request for Information on the feasibility of an expected cash flow approach. At this meeting the Board considered feedback received on the Request for Information, with the aim of developing an ED for publication in October. The Board tentatively decided:

  • to set up an expert advisory panel to provide input to the Board on operational aspects of applying the expected cash flow approach;
  • to use a drafting design that articulates a clear objective and emphasises principles reinforced by concise application guidance;
  • to include in the scope of the ED trade receivables, instruments quoted in active markets and individually significant assets;
  • to prohibit the recognition of a loss on initial recognition of a loan (or similar financial asset) that bears interest sufficient to cover the credit losses expected at initial recognition; and
  • to seek the expert advisory panel's input on possible ways to simplify application of the effective interest method.

Phase 3 - Hedge Accounting

The Board tentatively decided:

  • to simplify today's hedge accounting requirements by replacing fair value hedge accounting with an approach that is similar to cash flow hedge accounting.
  • to further simplify the existing cash flow hedge accounting model to reduce complexity.
  • to address general hedge accounting first before considering the implications on portfolio hedge accounting; and
  • to consider separately any implications on hedge accounting for net investments in a foreign operation because there are also interactions with IAS 21 The Effects of Changes in Foreign Exchange Rates.

The Board will continue to discuss the project at an extra meeting on 22 September 2009.

Credit risk in liability measurement

The Board considered a preliminary summary of the responses to the discussion paper Credit Risk in Liability Measurement. The Board made no decision at this meeting and will consider a full summary of the responses in time for the analysis to be considered as part of Financial Instruments: replacement of IAS 39.

Classification of rights issues

The Board discussed responses to the proposed amendment to IAS 32 Financial Instruments: Presentation included in the exposure draft Classification of Rights Issues. The exposure draft addressed the classification of instruments that give the holders the right to acquire an entity's own equity instruments at a fixed price when that price is stated in a currency other than the entity's functional currency.

The Board decided tentatively that the scope of the amendment shall be restricted to include only instruments that are offered pro rata to all holders of a class of an entity's existing non-derivative equity instruments. The amendment will apply to rights the exercise of which will result in the entity receiving a fixed amount of cash for a fixed number of the entity's own equity instruments regardless of the currency in which the exercise price is denominated.

The Board decided tentatively that the amendments should apply retrospectively with an effective date of 1 February 2010 with early application permitted. The Board plans to publish the amendments in October 2009.

Date: 9/17/2009