It stated that it would not apply the hedge accounting rules of IAS39, which sets out how financial instruments are recognised and measured. ‘The Bank has not applied the hedge accounting rules of IAS39 and accordingly has recognised all gains and losses on derivatives in the income statement,’ the Bank said in its annual report.

The bank’s decision not to apply IAS39 in reporting its derivatives will be seen as a damaging slight to the efficacy of the standard.

Powerful industry representatives and accountancy giants have also issued criticisms. Melissa Allen, who chairs the International Swaps and Derivatives Association’s European accounting committee, sent a stinging letter to IFRIC chiefs stating that ‘the existing cash flow hedging requirements of IAS39 are open to different interpretations and perhaps more crucially, are currently being read differently by the major independent audit firms’.

PricewaterhouseCoopers backed up the claims: ‘We believe that the fair-value option should apply to both financial and non-financial host contracts with embedded derivatives.’