White Papers
IFRS 9: A SIMPLIFICATION OF IAS 39
In the wake of the 2008 financial crisis, the prevailing standard, IAS 39, was criticized for its complexity and the difficulties experienced in applying it.
IAS 39 is one of a whole raft of accounting standards published by the International Accounting Standards Board (IASB), whose goal is to standardize company asset valuation. Since 2005, companies have been obliged to follow these global and country-specific recommendations when publishing their financial results.
The aim of IAS 39 was to create greater transparency between companies and countries. Sadly, due to the high number of derogations and exceptions, accounting standards had become opaque and too complex to implement.
Then, the 2008 crisis damaged the concept of fair value as a means of expressing financial liabilities. Banks were the biggest users of the fair value option for financial liabilities; this was often linked to interest rate or other hedging strategies. In the course of the crisis, the concept of fair value was exposed as banks which had designated liabilities under fair value experienced significant gains in profit and loss, as credit spreads on their own debt widened.
In April 2009, G20 leaders and the Financial Stability Board asked the IASB and the US Financial Accounting Standard Board (FASB) to review the existing accounting standards relating to financial assets as a matter of urgency. The aim was to simplify them and bring them together under a single standard: IFRS 9: Financial Instruments.
This paper provides an update on the progress of IFRS 9, looking in particular at its impact on accounting and valuation. For each point, the author compares the approach taken by IAS 39 and IFRS 9.
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