EU Decision on New Accounting Standards Set to Affect Market

Financial News, June 16, 2002 | Go to article overview
Save to active project

EU Decision on New Accounting Standards Set to Affect Market


Byline: Natasha de Teran

A European Union decision made earlier this month to adopt new international accounting standards stands to significantly affect the derivatives market.The new regulation requires all European listed companies to implement the International Accounting Standard Board's international accounting standards (IAS) for their consolidated accounts by 2005, a move that will relate to 7,000 companies. Although there will be a temporary exemption for companies listed in the United States and using US generally accepted accounting principles (GAAP) and for companies that have issued debt but not equity instruments, even these companies will be required to comply with international standards by January 1, 2007.One of the more controversial parts of the new accounting standards is IAS 39, Financial Instruments: Recognition and Measurement. IAS 39 is almost identical to the US Financial Accounting Standard Board's standard FAS 133 introduced in June 2000. It demands that all companies preparing GAAP-based financial statements mark their derivative holdings to market.Under IAS 39 all derivatives will have to be recognised on balance sheet at fair value. All hedging relationships will have to meet stringent criteria in order for 'hedge accounting' to be applied. Many traditional strategies, such as the macro hedging (where a range of exposures are pooled and the overall risk is subsequently hedged) or netting (where subsidiaries exposures are offset against each other) may be severely restricted and may not qualify for hedge accounting. Option-based and currency hedges will also be affected by IAS implementation, as these are particularly difficult to classify under IAS 39's definition of hedge accounting. Ian Wright, a partner at PricewaterhouseCoopers, says: 'While application of IAS39 hedge accounting rules can significantly reduce earnings volatility, compliance with the hedge criteria will require significant systems enhancements for most companies.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

EU Decision on New Accounting Standards Set to Affect Market
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?