Analysts and reporting specialists are preparing for the uncertain adoption of IAS39, as there are no adequate mechanisms in place to calculate the fair value of derivative instruments.
IAS39, which has already sparked disagreements between the IASB and EU, will require companies to reflect all derivatives at fair value in their financial statements.
These instruments, however, are extremely difficult to identify, let alone quantify, and companies are battling to find a method that accurately values derivatives.
‘We are expecting a long bedding-in period for IAS39. Companies will be checking if derivatives were properly priced. There will be a lot of looking back and some level of restatement,’ said Sue Harding, managing director of Standard & Poor’s credit market services.
Mark Vaessen, CEO of KPMG’s international financial reporting practice, said it was surprising how many businesses were affected.
‘It was mainly financial services businesses that were expected to experience impacts from IAS39, but business in other sectors such as manufacturing have also been affected,’ Vaessen said. ‘Restatements are a possibility. This is not a small changeover and there will be glitches.’
Vaessen added that companies were investing ‘enormous amounts’ of money and had trained ‘thousands’ of staff as they worked on establishing a method for valuing derivatives.
Harding said that analysts would be relying on companies to unpack what methods were being used to value derivatives. ‘There are so many policies for valuing derivatives and we are going to need companies to explain what policies they are using,’ she said.
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