20 June 2002

IASB proposes improvements of Financial Instrument Standards

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The International Accounting Standards Board (IASB) published proposals to improve the two International Accounting Standards (IASs) related to accounting for financial instruments, IAS 32 and IAS 39. The proposals are in the form of an exposure draft on which comments are invited by 14 October 2002.

The release of the Exposure Draft marks the first stage of the IASB’s efforts to improve the accounting for financial instruments. The IASB has focused in the near term on improving the existing standards, which are closely modelled on the approach of US generally accepted accounted principles. Whilst the Board has signalled its desire ultimately to develop a principles-based approach for the accounting for financial instruments, the proposed improvements are aimed at removing inconsistencies in the existing standards, providing additional guidance, and easing implementation.

The IASB recognises that to undertake a complete overhaul would require time for a comprehensive re-examination of the complex issues involved and would prolong uncertainty for the many companies required to make the transition to international standards under a new European Union regulation. Furthermore, having in place usable standards for financial instruments is increasingly important for investors as the use of derivatives and other financial instruments grows. IAS 32 and IAS 39 and their US equivalents are the only existing standards that address the accounting for derivatives in a comprehensive manner.

Introducing the Exposure Draft, Sir David Tweedie, IASB Chairman, commented,
“With thousands of companies required to implement international standards in the next few years, there is an urgent need to remove uncertainty and to make it easier to implement the standards on the reporting of financial instruments. In a world in which financial instruments are becoming increasingly complex and are often a source of confusion for investors, having workable standards in place, with appropriate guidance, is an essential element in providing investors with a complete picture of companies’ financial performance. These proposals offer a practical and timely solution to the immediate problem. In the longer term, the IASB will initiate a complete re-examination of the issue with the aim of creating a universally-accepted principles-based approach for financial instruments.”

Download the Exposure Draft on the IASB web site.

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