Accountancy Forum

Dears,

The International Accounting Standards Board (IASB)issued amendments to IAS 39 Financial Instruments Recognition and Measurement and IFRS 7 Financial Instruments Disclosures on 13 October 2008 that would permit the reclassification of some financial instruments.

According to the press release

The amendments to IAS 39 introduces the possibility of reclassifications for companies applying International Financial Reporting Standards (IFRSs), which were already permitted under US generally accepted accounting principles (GAAP) in rare circumstances.

The deterioration of the world’s financial markets that has occurred during the third quarter of this year is a possible example of rare circumstances cited in these IFRS amendments and therefore justifies its immediate publication.

This will enable companies reporting according to IFRSs to use the reclassification amendments, if they so wish, from 1 July 2008.

These amendments are the latest in a series of steps that the IASB has undertaken to respond to the credit crisis. The IASB has worked with a number of other regional and international bodies, including the Financial Stability Forum (FSF), to address financial reporting issues associated with the credit crisis. In responding to the crisis, the IASB notes the concern expressed by EU leaders and finance ministers through the ECOFIN Council to ensure that
‘European financial institutions are not disadvantaged vis-à-vis their international competitors in terms of accounting rules and of their interpretation.’

The amendments address the desire to reduce differences between IFRSs and US GAAP in a manner that produces high quality financial information for investors across the global capital markets.

Sir David Tweedie, Chairman of the IASB, said

In addressing the rare circumstances of the current credit crisis, the IASB is committed to taking urgent action to ensure that transparency and confidence are restored to financial markets. The IASB has acted quickly to address the concerns raised by EU leaders and others regarding the issue of reclassification. Our response is consistent with the request made by European leaders and finance ministers; it is important that these amendments are permitted for use rapidly and without modification.’

For more information about the IASB’s response to the credit crisis, see the Website at http//www.iasb.org/credit+crisis.htm.

The following illustrates how reclassification will be dealt with following this announcement by IFRSs when compared with US GAAP.

US GAAP IAS 39 Amendments

1. Reclassification of securities out of the trading category in rare circumstances

US GAAP = Permitted
IAS 39 Amendments = Permitted

2. Reclassification to loan category (cost basis) if intention and ability to hold for the foreseeable future (loans) or until maturity (debt securities)

US GAAP = Permitted
IAS 39 Amendments = Permitted


3. Reclassification if fair value option previously elected

US GAAP = Not Permitted
IAS 39 Amendments = Not Permitted


For further detail, these amendments should be studied.


Best regards,



KAMRAN.