PracticeConsultingDoubts grow over future of IAS39

Doubts grow over future of IAS39

Uncertainty around the accounting standard IAS39 has deepened after compromise proposals from a French bank to save the notorious new rule were rejected by the standard setter.

Link: IAS special report

This latest twist in the IAS39 saga increased the likelihood that the European Commission would oppose the standard in its current form. There is now a real prospect that inter-national standards will have to go ahead in 2005 without settling how banks are to account for significant parts of their business.

Europe resolute on IAS39

The commission has asked the IASB to find a short-term solution to address the concerns of Europe’s banking sector, with a commitment to look at some of the more fundamental issues at a later date.

The proposal put to the board would have appeased the EC’s worries and would have led to the adoption of IAS39 for 2005. The IASB has refused to name the bank involved. The compromise solution was sought at a London IASB meeting last week, but the board said that the proposals were not consistent with other standards.

Hopes for a resolution to the problem now rest on a meeting between the IASB and the European Banking Federation, timetabled for 9 June.

The EC has said that the matter must be resolved by mid-June to give companies enough time to prepare for the standards introduction, and for the endorsement process to be completed before the end of the year.

Failure to reach an agreement would raise the prospect of an unsuccessful introduction for international financial reporting standards in 2005.

‘If the EU doesn’t endorse IAS39, it undermines the whole project,’ said Tony Clifford, banking and regulatory partner at Ernst & Young. ‘A key plank would not be there and it’s more than likely that the US would insist that companies listed there would still have to reconcile to US GAAP. If that turns out to be the case you have to question why it is being done at all.’

It is thought that the EC is currently looking into the possibility of endorsing IAS39 with its own adjustments, which may keep the banks happy. But there could be significant legal hurdles to overcome for this to happen.

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