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CESR's report on reclassification of financial instruments

  • European Union (old) Image

16 Jul 2009

The Committee of European Securities Regulators (CESR) has completed a study of the application of the amendments to IAS 39 and IFRS 7 regarding Reclassification of Financial Instruments in 100 large EU financial companies' annual financial statements for 2008. The objectives of the study were (a) to consider how financial companies in Europe applied the reclassification amendments and (b) to analyse whether companies have complied with the related disclosure requirements in IFRS 7.

The 100 companies consisted of the 22 financial companies included in the FTSE Eurotop 100 index and 78 other financial companies across Europe. CESR found:
  • 61% of all the companies analysed used the option to reclassify in the annual financial statements for 2008.
  • 68% of the FTSE Eurotop companies used the option to reclassify in the annual financial statements for 2008 compared to only 36% in the interim financial statements for the 3rd quarter of 2008.
  • The impact of the reclassifications was positive on the profit and loss account and on other comprehensive income. If no reclassifications had been made, the total amount reported in the profit and loss account and in other comprehensive income would have been 28 billion Euros lower than the figures actually reported.
  • Inadequate compliance with the disclosure requirements in IFRS 7 when a reclassification took place:
    • 40% of all companies analysed (and around one third of the FTSE Eurotop companies) did not disclose the fair value gain or loss on the reclassified financial asset (whether recognised in profit or loss or in other comprehensive income) prior to the reclassification (IFRS 7.12A (d)).
    • Around half of all companies analysed (and around one quarter of the FTSE Eurotop companies) did not disclose the effective interest rate and the estimated amounts of cash flows that they expected to recover (IFRS 7.12A (f)).
    CESR's report expresses concern about the lack of disclosures.
CESR plans to review other aspects of the application of IFRS 7 in 2008 in light of the financial crisis and expects to publish the results of that analysis later in 2009. Click to download CESR Statement on Application of and Disclosures Related to the Reclassification of Financial Instruments (PDF 191k).
Click for IAS Plus summary page.

 

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