Changes to IFRS 7 have caused the ASB to propose amendments to FRS 29 ‘Financial Instruments: Disclosures'.  The proposals amend the disclosure requirements of FRS29 and incorporate new requirements that aim to assist users of financial statements evaluate an entity's risk exposure arising from transfers of financial assets as well as any impact on the financial position.

The IASB have issued an exposure draft which proposes requirements for hedge accounting that should enable companies to reflect their risk management activities better in their financial statements, and, in turn, help investors to understand the effect of those activities on future cash flows. 

A downgrading of an entity's own credit standing will lead to a reduction in the fair value of any debt that it has issued.  If that debt is accounted for under the fair value option then this creates a gain in the books of the entity as the value of its liabilities reduces.  This counter-intuitive result has perplexed many for some time. 

I have been studying the BPP study text for F1 - Financial Operations and have reached Chapter 12, Capital Transactions and Financial Instruments.

The text refers to IAS 32 and IAS 39, but I've just noted that IAS 32 has apparently been superseded by IFRS 7 Financial Instruments: Disclosures effective 2007.

I haven't been through the standards in detail, but would assume if it was felt a new standard was needed then there must be some differences between the two.

Does anyone know which standard is examinable in the new F1 syllabus? 

We seem to be in the middle of a concerted European attack on the IASB which may lead to the demise of international standards.  What is the background to this and is it justified?

A post on the FT Alphaville blog on Tuesday September 15 caught my eye ‘How accounting changes can create a world of investment banks’.   Tracy Alloway’s blog refers to a speech by Elizabeth A Duke, governor of the US Federal Reserve Bank, in which the governor raised several concerns with proposals by the IASB and the FASB on accounting for financial instruments.

The IASB has set itself the ambitious task of revising IAS 39, the troublesome financial instruments standard, by the end of the year.  Well when I say ‘set itself’ we should recognise that it came under considerable pressure from G20 leaders, the EU, the US Congress and others to accept this onerous task.  So far the project seems on track with the latest exposure draft on classification and measurement issued in July.

You have just had to announce a profits warning or, worse still, just announced an unexpectedly poor set of results and you return to your desk to hear that your company's debt rating has been reduced.  Not a happy picture, but, wait a moment, in walks your financial accountant to say that as a result of the credit downgrading the fair value of that debt instrument you issued last year has plummeted and you have to book a multi-million pound gain to your P&L.

It is a crazy world at times, isn't it?

Today's London Financial Times (26 June) contains an article by Gillian Tett on the use of credit derivatives by banks and hedge funds.  I also note that much of the talk about the current economic malise focuses on how to account for complex financial instruments - have the rules on fair value accounting and mark-to-market accelerated the downturn? This is clearly a problem area for banks, other financial institutions and probably large corporates but is it more widespread?