PracticeConsultingTension mounts as banks and EU dispute IAS39

Tension mounts as banks and EU dispute IAS39

A bitter row between the International Accounting Standards Board and the European Commission over controversial financial instruments standard IAS39 may result in an impasse that could derail its 2005 introduction.

Link: IAS special report

The board last week published its revisions to the macro hedging rules in IAS39, but it is thought that the limited concessions made to banks will not go far enough to resolve the clash.

Many financial institutions, and French president Jacques Chirac, have been infuriated by what they see as an injection of false volatility into their accounts by the new standard. They argue that the latest changes have brought no improvements.

‘The new release still doesn’t solve the key issue that banks are concerned about. The major impasse is still there,’ said Tony Clifford, partner at Ernst & Young.

The European banks were understood to have put forward an alternative approach on hedge accounting to the IASB several weeks ago, which had the backing of the EC. These suggestions, however, were not taken up by the IASB in this release.

Rumours circulating in the industry suggest that a major battle is brewing between IASB chairman Sir David Tweedie and EU internal markets commissioner Frits Bolkestein, with the EU refusing to endorse IAS39 unless the banks’ suggested amendments are made.

Last week, HSBC finance director Douglas Flint went against the grain of other banks after he admitted the bank could cope with the new rules on derivatives, and would move to international accounting standards no matter what decision the EU arrives at.

It had been hoped that such a public statement could force other banks to bite the bullet and endorse the standard. However, an industry insider suggested that this decision may be motivated, as much by the bank’s US listing, where it uses similar accounting rules on financial instruments, as contentment with the standard.

Email Paul_Grant@vnu.co.uk.

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