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Amendments to IAS 32 and IAS 39, Financial Instruments

Date recorded:

Board members made some general comments arising from the recent financial instrument roundtable discussions. The Board considered staff proposals on the issues for future discussion.

General Comments

The following comments were made by individual Board members and do not necessarily reflect the overall views of the Board:

  • Most Board members believed that the roundtable discussions were worthwhile.
  • In some cases, wording problems caused people to misunderstand the Board's intent in the Exposure Draft (ED) of proposed amendments to IAS 32 and IAS 39.
  • Some participants in the roundtables clearly favoured a principle based standard while others wanted more detailed guidance. The Board must assess the appropriate balance.
  • Some participants said they supported the principles in the ED but felt that some of the more detailed guidance in the ED was inconsistent with the principles. This was particularly evident in the proposals for dealing with hedge ineffectiveness.
  • The Board should bear in mind that this is an improvements project and not a complete rewrite of the financial instruments standards.
  • Some commentators objected to the proposals because they did not want to change from their current practices.
Going Forward


The staff proposed reverting to the existing IAS 39 principles with a clarification of the wording and incorporation of certain guidance developed by the former IAS 39 Implementation Guidance Committee (IGCs). Some Board members noted that the changes were proposed because of concerns around the operationality of the current approach and that it could result in different answers being reached by different people. They expressed the view that if the current approach is retained, the meaning of control needs to be clarified.

The Board agreed that the staff should examine keeping a version of the current approach, specifying the wording changes that are needed and identifying the IGCs to incorporate. The Board also asked the staff to consider the interaction of the pass-through arrangements and SIC 12, including the effect on a transfer of portions of assets.

Derivatives and Hedging

The Board still supports the principle that derivatives should be recorded at fair value. Board members felt, however, that the justification for this should be explained in the Basis for Conclusions. Further, the Board agreed that the staff should explore:

  • Various hedging issues including proposals to be submitted by commentators, but within the framework of the principles in the ED.
  • Inter-group hedging, provided that any profit or loss arising from these transactions is eliminated.
  • The use of non-derivative instruments as hedging instruments.
  • Eliminating cash flow hedges.


The Board agreed that impairment should be based on an incurred-loss model. However, they asked the staff to re-examine the wording and detail of the requirements and to reconsider whether individually tested items should be included in portfolios for further impairment testing.

Liabilities and Equity

The Board asked the staff to consider the comments made and make recommendations based thereon at a future meeting.

Fair Value Option

The Board agreed that the staff should examine the effects of including an entity's own credit risk in fair value adjustments and the potential for 'cherry-picking' instruments on the first-time application of IFRS.


The Board agreed that the staff would consider the following issues:

  • Arbitrage transactions.
  • Disclosure of assumptions in models to determine fair value.
  • Large and small block valuations.
  • Reversal of impairment on available for sale assets.
  • Management intention in offsetting.

The Board agreed that the Board members should identify which requirements, if any, they believe would require re-exposure based on changes to the ED that have been tentatively agreed to. These should be communicated to the staff so that they are addressed first.

Insurance (within IAS 39)

The Board agreed that the staff should consider the following:

  • The definition of insurance contracts.
  • That an embedded derivative within an insurance contact should not be separated out where the insurance contract is remeasured such that the embedded derivative is at fair value even if the entire insurance contract is not at fair value.
  • The effect of the mixed model between financial assets backing insurance liabilities at fair value and insurance liabilities at a valuation amount.
  • The definition of transaction costs.

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