07 January 2009

CESR statement on the reclassification of financial instruments

CESR has considered the issues on fair value option and concludes among others that there is a need to examine the effects of the use of the fair value option in more detail within a short timeframe.

Responding to the request from the European Commission CESR has considered the issues on fair value option, embedded derivatives, and Impairment of Available for Sale Items.

 

CESR summarises its views on these issues below.

Fair value option

CESR concludes that there is a need to examine the effects of the use of the fair value option in more detail within a short timeframe.

According to the letter from IASB to the European Commission the IASB states that they are committed to such an examination as a matter of priority and will also seek the advice of the newly formed Advisory Group on this issue.

 

Embedded derivatives

CESR encourages the IASB and the FASB to work together to assess whether further clarification is needed. CESR also recommends that the IASB provides guidance on the main types of synthetic structures covered and on which factors are important for issuers in determining whether an embedded derivative exists and if so, whether it should be measured separately. This clarification should also state that embedded financial guarantee-types do not need to be separated out.

In the response to the European Commission the IASB states that both the IASB and the FASB believe that the standards are consistent, and the FASB has now agreed to issue mandatory implementation guidance to ensure that US GAAP is applied in the same way as IFRS.

 

Impairment of Available for Sale Items

CESR recommends the IASB examines the issues surrounding impairment for available for sale financial instruments. The IASB will address the broader question of impairment as part of an urgent broader project on financial instruments in 2009. IASB and the FASB are both proposing a change in disclosure requirements for impairments. The IASB therefore expects to publish an exposure draft before the end of the year and are asking for comments by Mid-January 2009.

 

Especially in the area of financial instruments CESR is of the view that one single set of accounting standards for financial instruments at a global level is a matter of urgency. Such work should therefore be prioritised by the standard setters.

 

In addition, CESR would recommend that the IASB in rare circumstances should develop due process procedures – including public consultation – that enable it to amend its standards in response to emergency circumstances.

 

Further steps

CESR will in particular follow up and review the disclosures required by the amendments to IFRS 7 regarding reclassification in the annual financial statements for 2008 when these financial statements are published during spring 2009. CESR will also consider reviewing other aspects of IFRS 7.

 

Full statement

 

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