Academic journal article Journal of Accountancy

IASC Puts Derivatives on the Balance Sheet

Academic journal article Journal of Accountancy

IASC Puts Derivatives on the Balance Sheet

Article excerpt

The International Accounting Standards Committee issued in March its long-awaited standard on accounting for financial instruments. International Accounting Standard no. 39, Financial Instruments: Recognition and Measurement, clarifies the need for disclosing derivatives and other hedge transactions, as well as conventional financial assets and liabilities, such as cash, trade receivables and payables, investments in debt and equity securities, and notes, bonds and loans payable.

The standard had been in development since 1989. It was preceded by exposure drafts in 1991, 1994 and 1998, as well as a stewing committee discussion paper in 1997. Why did it take so long? According to Paul Pacter, IASC project manager, the IASC in conjunction with FASB, has been working to change the basic accounting model for many financial instruments from a historical cost model to a fair-value model. "That kind of dramatic change requires careful study and a process of education and systems changes" said Pacter.

According to IASC secretary general Sir Bryan Carsberg, publication of the standard fills the "biggest void" in accounting standards in virtually every one of the 103 member countries of the IASC. "Financial instruments are often the most substantial component of many companies' assets and liabilities," said Carsberg. "Only in the United States is there a comparable, comprehensive standard on recognition and measurement of financial instruments and hedge accounting."

Publication of IAS no. …

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