The International Accounting Standards Board (IASB) this

week unveiled the final version of its reform package for financial instruments accounting. The revisions affect hedge

accounting, own credit, and the implementation deadline for a portion of the International

Financial Reporting Standards (IFRS) relating to financial instruments.

The IASB is the standards-setting arm of the IFRS

Foundation, charged with developing a single, globally accepted set of

accounting standards. The amendments affect IFRS 9 Financial Instruments, which

will replace existing financial instruments accounting rules as IFRS 39 is

phased out.

“This package includes several, long-awaited reforms to

financial instruments accounting,” IASB Chairman Hans Hoogervorst said in a

statement.

IASB officials said the hedge accounting reforms amount to a

“substantial overhaul” of the rules, with the intention of allowing users to

better reflect risk management activities on their financial statements.

Officials said the changes were made in response to concerns from users, both

about the difficulty of reporting risk management activities and the difficulty

of understanding hedge accounting rules.

As a result of those concerns, the IASB developed a new

model for hedge accounting, which aligns accounting more closely with risk

management. The new rules also improve disclosures about risk management

activity and hedge accounting. The biggest improvement, according to IASB, affects

users that hedge non-financial risk, which could be of greater interest to

non-financial institutions. Users of financial statements should gain better information

about risk management and the effect hedge accounting has on the financial

statement.

Hoogervorst said the hedge accounting change “has received

strong support from corporates around the world.”

On the “own credit” issue, the IASB will allow previously

announced changes within IFRS 9 to be applied in isolation. Entities will be

allowed to change the accounting for liabilities they measure at fair value

before having to apply any additional requirements contained in IFRS 9. Gains

caused by a worsening of an entity's own credit risk on those liabilities do

not have to be recognized in profit or loss.

The third major change contained in the amendments is a

delay in the deadline for mandatory implementation of IFRS 9. The

implementation deadline had been 1 January 2015. Officials said they supported

the postponement of the deadline because the impairment phase of the IFRS 9

project has not been finalized, and preparers would not have adequate time to

use the new standards. A new deadline will be established when officials are

closer to completing the entire project. Entities are allowed to use IFRS 9

immediately, but do not have to do so.

Further details of the changes are available on the IFRS web site.

The IASB is continuing to work on other aspects of IFRS 9

relating to classification and measurement requirements, as well as a new

credit loss impairment model and accounting for macro hedging.

 

Topics