EC asks IASB to amend IAS 39

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29 Oct 2008

The European Commission has written to the IASB asking the IASB to amend or interpret IAS 39 to ensure that the following three specific matters are addressed in time for year-end 2008 financial reports:

  • Financial assets presently classified as fair-value-through-profit-or-loss using the Fair Value Option can be classified into other categories and not measured at fair value, for the same reasons, and under the same conditions as the assets reclassified out of the held-for-trading category.
  • Clarification on whether synthetic collateralised debt obligations (CDOs) include embedded credit derivatives. Currently, IAS 39 is interpreted as requiring separation and fair value measurement for such embedded credit derivatives, whereas US GAAP does not require an embedded derivative to be recognised separately.
  • Adjustments to impairment rules applicable to available-for-sale (AFS) interest-bearing financial assets, so that AFS would be treated the same way as loans and receivables and held-to-maturity debt instruments, The effect of such a change would be to keep a portion of the fair value decline on AFS in equity rather than recognising it in profit or loss as IAS 39 currently requires.
An annex to the letter also asks for a fourth change – allowing reversal of impairment losses not only for debt securities but also for equity instruments. The Commission's Letter (PDF 249k) also states that:

Recent developments raise broader issues related to the role of fair value accounting for financial instruments which we intend to explore further with all stakeholders as a matter of urgency. This issue should also be comprehensively addressed in the context of ongoing IASB projects. There may be a need to adjust the timetable of ongoing projects to reflect the immediate needs of the current crisis.

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