Revised Intl. Accounting Standards Welcomed

The following statement is a joint release from the Securities Commission of New Zealand, the Accounting Standards Review Board and the Institute of Chartered Accountants of New Zealand.

For immediate release 19 December 2003

Revised International Accounting Standards
On Financial Instruments Welcomed

The Securities Commission of New Zealand, the Accounting Standards Review Board (ASRB) and the Institute of Chartered Accountants’ Financial Reporting Standards Board (FRSB) have welcomed the publication of two revised International Accounting Standards addressing financial instruments by the International Accounting Standards Board (IASB).

The standards are IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement.

IAS 32 contains requirements for the presentation of financial instruments and identifies the information that should be disclosed about them. This includes matters such as how to determine whether a financial instrument is a financial liability or an equity instrument. The disclosure requirements are intended to assist readers in assessing the risks an entity faces and the policies an entity has in place for controlling those risks.

IAS 39 establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. The standard specifies when and how financial assets and liabilities should be reported on or off the balance sheet. It also requires all derivatives and certain other financial assets and liabilities to be accounted for at fair value, and restricts the use of hedge accounting techniques to defer the recognition of gains and losses.

The FRSB has been an active contributor to the projects that led to the release of these standards.

The FRSB will expose New Zealand versions of these standards early in the new year as part of its programme to have International Financial Reporting Standards available for use by New Zealand entities from 1 January 2005, with mandatory application from 2007. Constituents will have the opportunity to comment on the New Zealand draft standards before they are finalised for approval by the ASRB.

The two standards will fill a gap that currently exists in New Zealand’s financial reporting requirements and are expected to result in more consistent reporting of financial instruments. However, application of the standards is likely to increase the volatility of reported financial performance. In addition, the standards have clear guidance on classifying financial instruments, as debt or equity, and this can have a significant impact on reported financial position. Entities are therefore encouraged to give early consideration to the likely impact of these standards on their reported performance and financial position.

A further revision of IAS 39 is expected to be issued around the end of March 2004. This revision will implement amendments intended to simplify some hedge accounting for banks and other financial institutions. The IASB is still considering those amendments and did not wish to delay issuing IAS 32 and IAS 39.

For more information, see the IASB’s press release on www.iasb.org.uk

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