Sunday, January 12, 2014

IASB 2014 Agenda includes Increasing Role for Accounting Standards Advisory Forum

In looking at 2014, IASB Chair Hans Hoogervorst said that the Accounting Standards Advisory Forum (ASAF) will play a critical role in the development and enhancement of IFRS. The Forum has ushered in a new era of enhanced cooperation in standard-setting. In addition, he expects the IFRS Interpretations Committee to play a far more active role with a number of new tools at its disposal. Moreover, the completion of the remaining convergence projects with the FASB will naturally result in IASB technical staff working in a different manner on new agenda projects, noted the Chair, such as the Conceptual Framework and the Disclosure Initiative.

The main goal of the Accounting Standards Advisory Forum to help rationalize and streamline the current complex web of bilateral relationships that the IASB has with National Standard-Setters and regional bodies associated with accounting standard-setting. The FASB is a member of the Forum, along with, among others, the Canadian Accounting Standards Board, the Chinese Accounting Standards Committee and the U.K. Financial Reporting Council.

The IASB also intends to endorse IFRS 9 on accounting for financial instruments in 2014. The financial crisis has driven the IASB to accelerate its work to replace IAS39 with IFRS 9. In the new Standard, the IASB is continuing with a mixed measurement approach, but the Board has tried to put the criteria for classification and measurement on a more objective footing. The classification of a financial instrument depends on both the nature of the cash flows and the business model, explained the Chair. Thus, if an instrument has basic loan features and the business model is to hold it for collection, it is measured at amortized cost. If a financial instrument does not have basic loan features and the business model is to trade the asset, it will be measured at fair value through profit and loss.

IFRS 9 will not drastically change the present situation, he noted, in which most banking assets are carried at cost. But this does not mean that the financial industry can continue to live in the blissful stability provided by amortized cost.

The IASB is currently developing a Discussion Paper on a new macro hedging model. This model will make it possible to better represent in the accounts such risk management activity relating to open portfolios, rather than restricting hedge accounting to specific financial instruments. Accounting for macro hedging would basically make it possible to match the current value of interest rate exposures that are embedded in open portfolios with the fair value of the derivatives that are used to hedge those exposures.

Since it will still take significant time to finalize possible proposals on macro hedging, the Board has separated it from the rest of IFRS 9, which is practically finished and will soon be ready to be endorsed. Because of the significant improvements that IFRS 9 makes in classification and measurement, and also in general hedging and impairment, the IASB Chair has no doubt that it will be endorsed around the world.

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