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Presenter: Jim Leisenring

Presenter: Jim Leisenring. Reducing Complexity in Reporting Financial Instruments. IAS 39 – Financial Instruments A complex standard. Complex - many rules and exceptions to underlying principles Never been subject to comprehensive review by IASB.

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Presenter: Jim Leisenring

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  1. Presenter: Jim Leisenring Reducing Complexity in Reporting Financial Instruments

  2. IAS 39 – Financial InstrumentsA complex standard • Complex - many rules and exceptions to underlying principles • Never been subject to comprehensive review by IASB

  3. IAS 39 – Financial InstrumentsResulting Problems • For users to understand the information reported • For preparers to apply the requirements properly • For others to audit, analyse and regulate the entity Many have urged the IASB to produce principle-based standards that are less complex

  4. Financial instruments are complex Hard to understand even with full information Credit risk difficult to analyse Principles obscured by: Measurement alternatives Bright lines Exceptions Sources of Complexity

  5. Today’s problems arise from: Mixed measurement model Hedge accounting Definition of financial instruments Derecognition Presentation and disclosure Other issues (eg unit of account) Sources of ComplexityMore specifically

  6. Accounting sources addressed in paper are: Measurement alternatives Hedge accounting Sources of ComplexityAddressed in the paper Presentation and disclosure is not addressed in the paper.

  7. Many measurement methodsA significant source of complexity Hedge accounting Fair value option Embedded derivatives Many measurement methods Impairment of cost-based assets Definitions of different types of financial instruments Change of measurement method

  8. Recognition and Measurement– Discussion Paper Document How to reduce complexity Definitions Classification Hedge accounting Derecognition (next speaker) Unit of account Next steps (alternatives) Continue to interpret and amend Major re-write with mixed attributes Full fair value

  9. Intermediate Approach – Classification and Measurement • Reduce classification categories • Establish a fair value default with exceptions for vanilla instruments (receivables, payables, loans) • Some combination of above • Some other simplifications?

  10. Intermediate Approach – Simplify hedge accounting • Replace existing fair value hedge accounting requirements with less complex alternative • Simplify existing cash flow and fair value hedge accounting requirements • Eliminate hedge accounting • Something else?

  11. Intermediate Approach – What we need to know Should the IASB consider an intermediate approach? If so, which intermediate approach should the IASB consider and why?

  12. Long-term Approach – Use single measurement method • Question: What is the appropriate single measurement attribute for alltypes of financial instruments? • Fair value (a current value) seems to be only appropriate measurement method • Using fair value could reduce some of today’s complexity, but...

  13. Long-term Approach – Issues and concerns • Fair value measurements may introduce or increase complexity • Some important issues need to be addressed • It might take a long time to resolve those issues

  14. How should the IASB move forward? Long-term approach? Intermediate approach? Some other approach?

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