An Executive Guide to IFRS: Content, Costs and Benefits to Business

Financial instruments

This area is subject to so much pressure for change that it is almost not worth talking about. Both standard-setters are in the process of moving to a new model, and there is a lot of pressure for it to be a converged model, but it is too early yet to say if they will get there. Historically, the original IASB standard, IAS 39 Financial Instruments: Recognition and Measurement, was much influenced by US thinking, but as is often the case, if the basic approach was the same, the details often varied. The US and international standards had the same categories of financial instruments, and broadly similar treatment for gains and losses. However, in 2003 the IASB introduced an option to value anything at fair value to correct an accounting mismatch (e.g. assets held at historical cost backing liabilities at fair value). The FASB subsequently also introduced a fair value option but with far fewer constraints.

Where there were possibly significant differences was impairment. The US had the concept of ‘temporary impairment’ and only assets that were other than temporarily impaired had to make a write-down. That write-down, however, was permanent, whereas under IAS 39 while write-downs must be made whenever there was an impairment, temporary or not, some could be reversed subsequently. In limited circumstances the FASB permitted reclassification whereas the IASB prohibited that until pressured by the European Union to make a relaxation in October 2008.

At the time ...