AMENDMENTS TO IAS 32 IAS 39

169 Pages·2002·1.49 MB·English

Exposure Draft of Proposed
AMENDMENTS TO
IAS 32
FINANCIAL INSTRUMENTS:
DISCLOSURE AND PRESENTATION
IAS 39
FINANCIAL INSTRUMENTS:
RECOGNITION AND MEASUREMENT
Commentstobereceivedby14October2002
ThisExposureDraftispublishedbytheInternationalAccountingStandardsBoard Contents
(IASB)forcommentonly. Therecommendationsinthedraftmaybemodifiedin
the light of the comments received before being issued in the form of amended Page
InternationalAccountingStandards. Introduction 4
Commentsshouldbesubmittedinwritingsoastobereceivedby ProposedAmendmentstoIAS32FinancialInstruments:
14October2002. DisclosureandPresentation 7
All replies will be put onthepublicrecordunless confidentialityis requestedby InvitationtoComment 8
thecommentator. Ifcommentatorsrespondbyfaxoremail,itwouldbehelpfulif
they could also send a hard copy of their response by post. Comments should SummaryofMainChanges 10
preferablybesentbyemailto:[email protected]:
Contents 14
InternationalAccountingStandardsBoard
Standard 16
30CannonStreet
LondonEC4M6XH Appendices:
UnitedKingdom
AApplicationGuidance 66
Fax:[phone]
BBasisforConclusions 107
Copyright©2002InternationalAccountingStandardsCommittee
ProposedAmendmentstoIAS39FinancialInstruments:
Foundation
RecognitionandMeasurement 123
ISBN0905625994
InvitationtoComment 124
All rights reserved. Copies of this Exposure Draft may be made for the
purposeof preparingcomments tobesubmittedtotheIASB,providedsuch SummaryofMainChanges 127
copies are for personal or intra-organisational use only and are not sold or
disseminated and provided each copy acknowledges the International Contents 133
Accounting Standards Committee Foundation’s copyright and sets out the
Standard 137
IASB’s address in full. Otherwise, no part of this Exposure Draft may be
translated,reprintedorreproducedorutilisedinanyformeitherinwholeor Appendices:
in part or by any electronic, mechanical or other means, now known or
hereafter invented, including photocopying and recording, or in any AApplicationGuidance 225
informationstorageandretrievalsystem,withoutpermissioninwritingfrom
BIllustrativeExamples 243
theInternationalAccountingStandardsCommitteeFoundation.
CBasisforConclusions 265
The IASB logo/“Hexagon Device”, “IAS”, “IASB”, “IASCF”, “IASC”,
“IFRIC”,“IFRS”,“InternationalAccountingStandards”and“International DAlternativeViews 303
Financial Reporting Standards” are Trade Marks of the International
AccountingStandardsCommitteeFoundationandmaynotbeusedwithout ConsequentialAmendments 305
thepriorapprovaloftheIASCF.
ImpactonexistingIAS39ImplementationGuidance 309
Additional copies of this publication may be obtained from: IASCF
Publications Department, 7th Floor, 166 Fleet Street, London EC4A 2DY,
United Kingdom. Tel: [phone] Fax: [phone]
Email:[email protected] Web:www.iasb.org.uk
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 INTRODUCTION
Introduction 6. The Board invited the IAS 39 Implementation Guidance Committee
(IGC) to function as an Advisory Committee to the Boardinidentifying
and reviewing issues that should be addressed in the project to improve
1. This Exposure Draft contains proposed amendments to the two
IAS 32 and IAS 39. The IGC consists of senior experts in financial
InternationalAccountingStandardsonfinancialinstruments:
instruments with backgrounds as accounting standard-setters, auditors,
bankers, and preparers from a range of countries as well as observers
• IAS32,FinancialInstruments:DisclosureandPresentation
from the Basel Committee on Banking Supervision, the International
• IAS39,FinancialInstruments:RecognitionandMeasurement.
Organization of Securities Commissions (IOSCO), and the European
Commission.
Objective
Invitationtocomment
2. The objective of the proposed amendments is to improve the existing
requirementsinIAS32andIAS39. Theseamendmentsdealwithissues
7. The Board invites comments on the main changes proposed in the
identified by audit firms, national standard-setters, regulators, or others,
ExposureDraftandwouldparticularlywelcomeanswerstothequestions
and other issues identified in the IAS 39 implementation guidance
set out in the ‘Invitation to Comment’ section at the front of each
processorbyIASBstaff.
proposedrevisedStandard. Asnotedabove,theBoardisnotconsidering
changes to the basic principles in IAS 32 and IAS 39 at this time.
3. The Board does not intend to reconsider at this time the fundamental
Therefore, the Board is not requesting comments on matters relating to
approach to the accounting for financial instruments established by
the basic principles for which no changes have been proposed.
IAS32 and IAS 39. Some of the complexity in those Standards is
Comments shouldindicate thespecific paragraphorgroupofparagraphs
inevitableinamixed-attributemodelbasedinpartonintentandgiventhe
to which they relate, contain a clear rationale and, where applicable,
complexityoffinanceconceptsandvaluationissues. TheBoardexpects
provideasuggestionforalternativewording.
that the proposed amendments will reduce some of the complexity by
clarifying and adding guidance, eliminating internal inconsistencies, and
8. Comments should be submitted in writing so as to be received no later
incorporating into the Standards key elements of existing Standing
than 14 October 2002. Until revised Standards become effective, the
Interpretations Committee (SIC) Interpretations and IAS 39
requirements of the current version of the relevant Standards remain in
implementationguidance.
force.
4. The Board will continue its consideration of issues related to the
Presentationofthedocument
accounting for financial instruments. It expects, however, that the basic
principles in the improvedIAS 32andIAS39, once finalised, will be in
9. ThisExposureDraftpresentsforeachoftheproposedrevisedStandards:
placeforaconsiderableperiod.
• An invitation to comment. Questions have been limited to major
Process
issues, but the Board would also welcome comments on other
changesproposed.
5. In July 2001 the Board announced that, as part of its initial agenda of
technical projects, it would undertake a project to amend IAS 39. The
• A summary of main changes. This section gives a summary of the
BoardalsoagreedtotaketheopportunitytoreviseIAS32,asnecessary,
Board’s mainproposals for changestothe Standard. Minor matters
toremoveduplicationsandinconsistencies.
andeditorialchangesarenotmentioned.
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
• Revised text. A marked-up copy of the full text of the Standard is
presented.
• A basis for conclusions. This section presents the basis for the
Board’s conclusions on major issues. The Basis for Conclusions
presents views considered by the Board, including some supported
by a minority of Board members who, nonetheless, support the
publicationoftheExposureDraftforanindividualStandard.
• Alternative views. The alternative viewsinAppendixDtothe draft
ofIAS39reflecttheviewsofBoardmemberswhovotedagainstthe
publication of the Exposure Draft of that Standard. Those Board
members concludedthat the proposedrevisedtextforthatStandard,
takenasawhole,shouldnotbeissuedinitspresentform.TheIASB
doesnotallowpartialdissents. Boardmembers’views(includingthe PROPOSEDAMENDMENTSTO
views of Board members who supported the publication of the
Exposure DraftofanindividualStandard)maychangeasaresultof
IAS 32
comments received in the exposure process. Alternative views are
notattributedtoindividualBoardmembers. FINANCIALINSTRUMENTS:
DISCLOSUREANDPRESENTATION
10. ConsequentialamendmentstootherStandardsandSICInterpretationsare
presentedattheendoftheExposureDraft.
[Note:ForthepurposeofthisExposureDraft,thenewtextisshadedand
Style underlinedandthedeletedtextisshadedandstruckthrough.]
11. TheBoarddecidedthatStandardsrevisedinthisprojectshouldbeissued
asrevisedInternationalAccountingStandards(IASs). Therefore,mostof
the style changes the Board has agreed to make for new Standards-----
International Financial Reporting Standards (IFRSs)-----have not been
reflectedinthe revisedtext. These changesare set out inthePrefaceto
InternationalFinancialReportingStandards(issuedinMay2002).
12. However, this document reflects the Board’s decision to change certain
terminology in existing Standards. Accordingly, the word ‘shall’ is used
instead of ‘should’ and ‘entity’ is used instead of ‘enterprise’. By
replacing ‘should’ with ‘shall’, the Board does not intend to change the
requirements in the Standards, but toclarifythat it interprets‘should’ as
meaning ‘shall’. By replacing ‘enterprise’ with ‘entity’, a more neutral
term,theBoardintendstoreflectitsobjectivethatStandardsareusedby
allprofit-orientedentitiespreparinggeneralpurposefinancialstatements.
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
Invitation to Comment (IAS 32) Question3---Classificationofderivativesthatrelatetoanentity’sown
shares(paragraphs29C---29G)
The Board would particularly welcome answers to the questions set out
Do you agree with the guidance proposed about the classification of
below. Comments should indicate the specific paragraph or group of
derivativesthatrelatetoanentity’sownshares?
paragraphs to which they relate, contain a clear rationale and, where
applicable,provideasuggestionforalternativewording.
Question4---ConsolidationofthetextinIAS32andIAS39intoone
comprehensiveStandard
Question1-Probabilitiesofdifferentmannersofsettlement(paragraphs
Doyoubelieve it wouldbe useful tointegrate thetextinIAS32andIAS39
19,22,and22A)
intoonecomprehensiveStandardontheaccountingforfinancialinstruments?
(AlthoughtheBoardisnotproposingsuchachangeinthisExposureDraft,it
Do you agree that the classification of a financial instrument as a liabilityor
mayconsiderthispossibilityinfinalisingtherevisedStandards.)
as equity in accordance with the substance of the contractual arrangements
should be made without regard to probabilities of different manners of
settlement? The proposed amendments eliminate the notion in paragraph 22
that an instrument that the issuer is economically compelled to redeem
because of a contractually accelerating dividend should be classified as a
financial liability. In addition, the proposed amendments require a financial
instrument that the issuer could be required to settle by delivering cash or
other financial assets, depending on the occurrence or non-occurrence of
uncertainfutureeventsorontheoutcomeofuncertaincircumstancesthatare
beyond the control of both the issuer and the holder of the instrument, to be
classifiedasafinancialliability,irrespectiveoftheprobabilityofthoseevents
orcircumstancesoccurring(paragraph22A).
Question2---Separationofliabilityandequityelements(paragraphs28
and29)
Doyouagree thattheoptionsinIAS32foranissuertomeasurethe liability
element of a compound financial instrument initially either as a residual
amount after separating the equity element or based on a relative-fair-value
method should be eliminated and, instead, any asset and liability elements
should be separated and measured first and then the residual assigned to the
equityelement?
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
Summary of Main Changes (IAS 32) o Changes inthe fair value ofaderivative thatisfullyindexedto
the price ofanentity’sownshares andwill result inthe receipt
or delivery of a fixed number of an entity’s own shares in
Scope
exchangeforafixedamountofcashorotherfinancialassetsare
notrecognisedinthefinancialstatements.
• ThescopeofIAS32generallyisconformedtothescopeofIAS39.
o When a derivative involves an obligation to pay cash in
Classificationofcompoundinstrumentsbytheissuer
exchangeforreceivinganentity’sownshares,thereisaliability
fortheshareredemptionamount.
• The options in IAS 32 to measure the liability element of a
compound financial instrument initially either as a residual amount
The objective of the proposed amendment is to clarify the
after separating the equity element or by measuring the elements
requirements affecting the classification of derivatives based on an
based on a relative-fair-value method are eliminated. Instead, any
entity’sownsharesandtopromotetheconsistentapplicationofthose
asset andliabilityelementsareseparatedfirstandtheresidualisthe
requirements.
equityelement.
Disclosure
The objective of the proposed amendment is to conform the
requirements in IAS 32 relating to the separation of liability and
• TheexemptioninIAS32fromtherequirementtodisclosefairvalue
equity elements with the definition of an equity instrument as a
ofcertainfinancialassetsandfinancialliabilitiesisconformedtothe
residualandthemeasurementrequirementsinIAS39.
exemption in IAS 39 from the requirement to measure at fair value
certainunquotedfinancialassetsandfinancialliabilities.
Classificationofderivativesbasedonanentity’sownshares
• Disclosureisrequiredof:
• Guidance about the classificationof derivatives basedonanentity’s
ownsharesisprovided,asfollows:
o the extent to which fair values are estimated using a valuation
technique.
o Aderivativethatisindexedtothepriceofanentity’sownshares
and requires net cash or net share settlement, or gives the
o the extent to which valuations using valuation techniques are
counterparty a choice of net cash or net share settlement, is a
based on assumptions that are not supported by observable
derivative asset orderivativeliability(not anequityinstrument)
marketprices.
andisaccountedforassuchunderIAS39.
o the sensitivity of the estimated fair value to changes in those
o Aderivativethatisindexedtothepriceofanentity’sownshares
assumptions basedona range ofreasonablypossiblealternative
and gives the entity a right to require net cash or net share
assumptions.
settlement instead of gross physical settlement is a derivative
asset orderivativeliability(notanequityinstrument)unlessthe
o the change in fair values estimated using valuation techniques
entity has an established history of settling such contracts
recognisedinprofitorlossduringthereportingperiod.
througha gross exchange of a fixednumberoftheentity’sown
sharesforafixedamountofcashorotherfinancialassets.
o the nature and extent of transfers of financial assets that do not
qualifyforderecognition.
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
• The key elements of the guidance in proposed final SIC
o the risks inherent in any component that continues to be Interpretation 34, Financial Instruments --- Instruments or Rights
recognised after a transfer of financial assets that does not RedeemablebytheHolder,areincorporatedintoIAS32:
qualifyforderecognition.
o An issued instrument that involves a right for the holder to put
o the difference between the carrying amount and settlement the instrument back to the issuer for cash or another financial
amount of non-derivative financial liabilities that are carried at asset, the amount of which is determined based on an index or
fairvalue. other item that has the potential to increase and decrease, is a
liability.
o defaults in the payment of principal or interest and breaches of
sinkingfundorredemptionprovisionsonloanspayable,andany o Anentity(suchasanopen-endedmutualfundorunittrust)may
other breaches of loan agreements when those breaches can present a liabilitytorepayaproportionateshare ofthe netasset
permitthelendertodemandrepayment. valueoftheentityas‘netassetvalueavailabletounitholders’on
the face of the balance sheet andthe change inthe value of the
• An issuer of a compound instrument with multiple embedded liability as ‘change in net asset value available to unit holders’
derivative features (such as an issued callable convertible bond) is onthefaceoftheincomestatement.
requiredtodiscloseinformationabouttheexistenceofthosefeatures
andtheeffectiveyieldofthatinstrument.
• TheexistingdisclosurerequirementsinIAS39aremovedtoIAS32.
IncorporationofSICInterpretationsintoIAS32
• The key elements of the following SIC Interpretations are
incorporatedintoIAS32:
o SIC-5, Classification of Financial Instruments --- Contingent
Settlement Provisions. However, no exception is made to the
principle that a financial instrument that an entity could
potentially be required to settle by delivering cash or other
financialassets,dependingontheoccurrenceornon-occurrence
of uncertain future events or on the outcome of uncertain
circumstancesthatarebeyondthecontrolofboththeissuerand
theholder,shouldbeclassifiedasafinancialliability.
o SIC-16, Share Capital --- Reacquired Own Equity Instruments
(TreasuryShares).
o SIC-17,Equity---CostsofanEquityTransaction.
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
Contents FinancialAssetsCarriedatanAmountinExcessofFairValue 88-90
OtherDisclosures 93A-93B94
InternationalAccountingStandardIAS32 TRANSITIONALPROVISION 95
(revised200X)
EFFECTIVEDATE 96
FinancialInstruments:DisclosureandPresentation
APPENDIXA
ExamplesoftheApplicationGuidanceoftheStandard A1-A27A56
OBJECTIVE
Definitions A3-A17
SCOPE Paragraphs 1-4
LiabilitiesandEquity A18-A24
DEFINITIONS 5-17
OffsettingofaFinancialAssetandaFinancialLiability A25
PRESENTATION 18-41
Disclosure A26-A27
LiabilitiesandEquity 18-22D
ExamplesIllustratingtheAccountingforDerivativesonanEntity’s
ClassificationofCompoundInstrumentsbytheIssuer 23-29
OwnShares A26---A56
TransactionsinanEntity’sOwnEquityInstruments 29A-29G
TreasuryShares 29A-29B APPENDIXB
DerivativesBasedonanEntity’sOwnEquityInstruments 29C-29G BasisforConclusions(Revisions200X) B1–B42
Interest,Dividends,Losses,andGains 30-32A Presentation B4–B29
OffsettingofaFinancialAssetandaFinancialLiability 33-41 Disclosure B30–B42
DISCLOSURE 42-94
FormatandLocation 44-46
DisclosureofRiskManagementPoliciesandHedging
Activities 43A46A-46D
Terms,Conditions,andAccountingPolicies 47-55
InterestRateRisk 56-65
CreditRisk 66-76
FairValue 77-87
Continued../..
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
International Accounting Standard IAS 32 tofinancialinstrumentsandtheaccountingpoliciesappliedtotheinstruments.
In addition, the This Standard also deals with encourages disclosure of
(revised200X)
information about the nature and extent of an enterpriseentity’s use of
financial instruments, the business purposes that they serve, the risks
Financial Instruments: associatedwiththem,andmanagement’spoliciesforcontrollingthoserisks.
Disclosure and Presentation
TheprinciplesinthisStandardcomplementtheprinciplesforrecognisingand
measuring financial assets and financial liabilities in IAS 39, Financial
[Draft] International Accounting Standard 32 Financial Instruments: Instruments:RecognitionandMeasurement.
DisclosureandPresentation(IAS32)issetoutinparagraphs1-96. Allthe
paragraphshaveequalauthoritybut retainthe IASCformat oftheStandard
when it was adopted by the IASB. The scope and authority of IASs are
explained in the Preface to International Financial Reporting Standards.
IAS32isaccompaniedbyapplicationguidanceandaBasisforConclusions,
as set outinAppendicesAandB. IAS32shouldbereadinthecontextof
its objective and the Framework for the Preparation and Presentation of
Financial Statements, which provide a basis for selecting and applying
accountingpoliciesintheabsenceofexplicitguidance.
Objective
The dynamic nature of international financial markets has resulted in the
widespread use of a varietyof financial instruments ranging from traditional
primary instruments, such as bonds, to various forms of derivative
instruments, such as interest rate swaps. The objective of this Standard is to
enhance financial statement users’ understanding of the significance of
on-balance-sheet and off-balance-sheet financial instruments to an
enterpriseentity’sfinancialposition,performance,andcashflows.
The This Standard prescribes certain requirements for presentation of on-
balance-sheet financial instruments and identifies the information that should
be disclosed about both on-balance-sheet (recognised) and off-balance-sheet
(unrecognised) financial instruments them. The presentation standards
paragraphsdealwiththeclassificationoffinancialinstruments,betweenfrom
the perspective of the issuer, into liabilities and equity, the classification of
related interest, dividends, losses and gains, and the circumstances in which
financial assets and financial liabilities should be offset. The disclosure
standards paragraphs deal with information about factors that affect the
amount,timingandcertaintyofanenterpriseentity’sfuturecashflowsrelating
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PROPOSEDAMENDMENTSFINANCIALINSTRUMENTSJUNE2002 EXPOSUREDRAFTOFREVISEDIAS32
Scope applies to derivatives that are embedded in insurance contracts
(seeIAS39).
1. This Standard should shall be applied by all entities to in presenting (d) contractsforcontingentconsiderationinabusinesscombination
and disclosing information about all types of financial instruments (seeparagraphs65-67ofIAS22,BusinessCombinations).
except,bothrecognisedandunrecognised,otherthan: (e) contractsthatrequireapaymentbasedonclimatic,geologicalor
other physical variables, but this Standard applies to other types
(a) those interests in subsidiaries, associates, and joint ventures that ofderivativesthatareembeddedinsuchcontracts(seeIAS39).
are accounted for under as defined in IAS 27, Consolidated
Financial Statements and Accounting for Investments in
SubsidiariesConsolidation and Separate Financial Statements; 2. This Standard applies to recognised and unrecognised financial
IAS 28, Accounting for Investments in Associates; and IAS 31, instruments. Recognisedfinancialinstrumentsincludeequityinstruments
FinancialReportingofInterestsinJointVentures. However,an issued by the entity and financial assets and financial liabilities that are
entity shall apply this Standard to an interest in a subsidiary, within the scope of IAS 39. Unrecognisedfinancial instrumentsinclude
associate, or joint venture that according to IAS 27, IAS 28, or somefinancialinstrumentsthat,althoughoutsidethescopeofIAS39,are
IAS 31 is accounted for under IAS 39, Financial Instruments: within the scope of this Standard (such as certain loan commitments).
Recognition andMeasurement, such as one that isacquiredand Although this Standard does not apply to an enterprise’s interests in
held exclusively with a view to its subsequent disposal within subsidiaries, it does apply to all financial instruments included in the
twelvemonthsfrom itsacquisition. Inthesecases,thedisclosure consolidatedfinancialstatementsofaparent,regardlessofwhetherthose
requirements in IAS 27, IAS28,andIAS31apply inadditionto instrumentsareheldorissuedbytheparentorbyasubsidiary. Similarly,
thoseinthisStandard. the Standard applies to financial instruments held or issued by a joint
(b) interests in associates, as defined in IAS 28, Accounting for venture and included in the financial statements of a venturer either
InvestmentsinAssociates; directlyorthroughproportionateconsolidation.
(c) interests in joint ventures, as defined in IAS 31, Financial
3. ForthepurposesofthisStandard,aninsurancecontractisacontractthat
ReportingofInterestsinJointVentures;
exposes the insurer to identified risks of loss from events or
(b)(d) employers’ rights and obligations under employee benefit circumstances occurring or discovered within a specified period,
plans, to which IAS 19, Employee Benefits, applies. employers’ includingdeath(inthe case of anannuity, the survival of the annuitant),
and plans’ obligations for post–employment benefits ofall types, sickness, disability, property damage, injury to others and business
including employee benefit plans as described in IAS 19, interruption. However, the provisions of this Standard apply when a
Employee Benefits, and IAS 26, Accounting and Reporting by financial instrument takes the form of an insurance contract but
RetirementBenefitPlans; principallyinvolvesthe transferoffinancialrisks(see paragraph43),for
example, some types of financial reinsurance andguaranteedinvestment
(e) employers’ obligations under employee stock option and stock
contracts issued by insurance and other enterprisesentities.
purchaseplansasdescribedinIAS19,EmployeeBenefits;and
EnterprisesEntities that have obligations under insurance contracts are
(c)(f)rights and obligations arising under insurance contracts. encouragedtoconsiderthe appropriatenessofapplyingthe provisions of
However,thisStandardapplieswhenafinancialinstrumenttakes
this Standard in presenting and disclosing information about such
the form of an insurance (or reinsurance) contract as described
obligations.
in paragraph 3, but principally involves the transfer of financial
risks described in paragraph 43. In addition, this Standard
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