EXPOSURE DRAFT JULY 2009
DRAFT] INTERNATIONAL FINANCIAL REPORTING STANDARD X
FINANCIAL INSTRUMENTS: CLASSIFICATION AND MEASUREMENT
ED/2009/7
Question 1, 2, 3, 4, 6, 8, 9,10,11,12,13,14,15
No comment
Question 5
Do you agree that entities should continue to be permitted to designate
any financial asset or financial liability at fair value through profit or loss
if such designation eliminates or significantly reduces an accounting
mismatch?
No, that is unless the ED Fair Value Measurement (ED/2009/5) is also
introduced for adoption by the year end 2009, i.e. concurrently with this
ED.
The G20 leaders have recommended the IASB take action by the end of
2009. This ED/2009/7 proposes a reduction of the number of categories
to only “two categories”.
Significantly, one of these, ‘Fair Value’, is itself subject to an exposure
draft, ED/2005/5, which is not scheduled to be ready by the same date.
Were ED/2009/5, Fair Value Measurement, also to be ‘actioned’ by the
G20 deadline then the answer to Question 5 would be changed to a Yes.
Question 7
Do you agree that reclassification should be prohibited?
No. There are circumstances when reclassification will provide
understandable and useful information to users of financial statements.
Such as;
a) when markets dry up and the reported fair values bring uncertainty in
the minds of the users of financial statements; whereas using
Amortised cost ‘plus’ Impairment would be more appropriate
b) when an entity’s management sees that, in hind sight, it
inappropriately elected to use Fair Value on certain items in certain,
now, illiquid markets (stating its reasons ready to answer questions
from users of the financial statements).
Amortised cost is the proposed alternative (under this ED/2009/7) and
with the proper use of ‘Impairment’ would be an appropriate alternative.
With respect to “How would you account for such reclassifications,
and why”; the previous accounting entries would be unwound and the
accounts would be ‘restated’ using an amortising basis.
The particular items would be shown as separate line entries in both the
P&L and Balance sheets so that the users of the financial statements
can see what were the previous carry amounts and what are the new
carrying amounts and be able to reconcile the differences.
These ‘movements’ in the values of the particular items would be
explained fully and made available by way of a separate note in the
accounts.
The main benefit is that the users of the financial statements would be
able to see very clearly; what’s been changed, why and (importantly) the
implications with respect to the performance and management of the
entity.
Richard Hicks
14th September 2009