In 2009, the International Accounting Standards Board (IASB) published quite few new or revised standards but two of them account for major changes.
First, in July 2009, after a six-year development process, the IASB released the IFRS for SMEs, a stand-alone standard for small and medium-sized entities. This standard will be the subject of IFRS: What’s New for 2010? (Part 2).
The second major standard is IFRS 9 “Financial instruments”. Issued in November 2009, this is the first stage of the IASB’s wider project to replace IAS 39 “Financial instruments: recognition and measurement”.
In addition to these two major enhancements, the IASB also issued the following amendments or revisions in 2009:
- Improvements to IFRSs (2007 – 2009): a collection of amendments to 12 existing standards. The IASB uses the annual improvements project to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of another major project. Most of the amendments are effective for annual periods beginning on or after 1 January 2010
- Amendment to IAS 32 “Financial Instruments: Presentation” regarding the accounting for rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. This amendment is effective for annual periods beginning on or after 1 February 2010 (earlier application is permitted)
- Revised version of IAS 24 “Related Party Disclosures” that simplifies the disclosure requirements for government-related entities and clarifies the definition of a related party. The revised standard is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted.
Last but not least, it should be remembered that most companies will apply revised IFRS 3 and IAS 27 for the first time in their 2010 accounts. Indeed, these standards – also referred to as Business Combinations II – are effective for annual periods beginning on or after 1 July 2009 (which means 2010 annual accounts for companies whose accounting year is identical to calendar year). We will not elaborate further here as the major changes these revisions have brought have already been largely explained (see How starter kits meet IFRS – IFRS 3).
Focus on IFRS 9
Let’s turn back now to IFRS 9, the standard that will gradually replace IAS 39 for financial instruments accounting.
During the financial crisis, IAS 39 has been widely criticized. In April 2009, the G-20 leaders asked the accounting standard setters to improve standards for the valuation of financial instruments and in particular to reduce the complexity of accounting standards for financial instruments. Furthermore, the Council of the European Union urged the IASB to amend IAS 39 quickly and in time for the preparation of the 2009 year-end financial statements.
In order to speed up the replacement of IAS 39, the IASB has divided the project in 3 phases:
As each phase is completed (see chart above), chapters with the new requirements will be added to IFRS 9 and the relevant portions deleted from IAS 39.
Classification and measurement of financial assets: What’s New?
The table below summarizes the main differences between IAS 39 and IFRS 9 regarding the classification and measurement of financial assets:
Effective date and transition
IFRS 9 is effective for annual periods beginning on or after 1 January 2013; earlier application is permitted.
Retrospective application is required in accordance with IAS 8 but several exceptions may apply. In particular, if an entity adopts the standard for reporting periods beginning before 1 January 2012, it is not required to restate prior periods.
In the next blog, we will focus on the IFRS for SMEs.
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