CESR: ‘No need for transparency-related reclassification of financial instruments’.
15 July 2009
The objective analysis conducted by CESR members was to consider how financial companies in Europe applied the amendments to IAS 39 and IFRS 7 regarding reclassification of some financial instruments in their 2008 annual financial statements.
In the report, CESR drew the attention of issuers to the need to provide all the transparency possible regarding the options they had chosen when implementing the reclassification amendment in their year-end financial statements, as it was very important that users be able to understand developments within the issuer during the financial crisis.
The objectives of the first part of the analysis conducted by CESR members were:
(a) to consider how financial companies in Europe applied the amendments to IAS 39 and IFRS 7 regarding reclassification of some financial instruments in their 2008 annual financial statements
(b) to analyse whether companies have complied with the disclosure requirements set out in IFRS 7 regarding reclassification of financial instruments.
The results of CESR’s analysis can be summarised as follows:
- In the sample selected, more financial companies used the option to reclassify in the annual financial statements for 2008 when compared to the interim financial statements for the 3rd quarter 2008.
- The level of companies in the whole sample that reclassified financial instruments represent 79% of the balance sheet totals of all companies sampled. Among the FTSE Eurotop companies, the companies that reclassified represented 81% of the balance sheet totals for those companies.
- The impact of the reclassifications was positive on the profit and loss account and on other comprehensive income.
For those companies that did apply the option to reclassify:
- 40% of all companies analysed did not disclose the fair value gain or loss on the reclassified financial asset.
- Around half of all companies analysed did not disclose the effective interest rate and the estimated amounts of cash flows that they expected to recover.
As far as these disclosures are concerned, CESR would like to stress that the fulfilment of all requirements in IFRS 7 related to reclassification is particularly relevant for users of financial statements. CESR would have expected companies seeking to benefit from the amendments introduced to IAS 39 also to comply fully with the disclosure requirements that were introduced in October 2008.
© CESR - Committee of European Securities Regulators
