UPDATE: Changes to International Accounting Standards

In the Summer 2003 issue of Financial Services Quarterly, we commented on standards issued by the International Accounting Standards Board. The two standards that relate to financial instruments are Standard 32:Disclosure and Presentation and Standard 39:Recognition and Measurement.

The Financial Reporting Standards Board (FRSB) of the Institute of Chartered Accountants of New Zealand is in the process of formulating the New Zealand equivalent of these standards and has issued discussion papers and exposure drafts. The Discussion Papers and Exposure Drafts for Standards 32 and 39 were issued in February 2004 and the due date for comments is 30 April.

The FRSB aims to have International Financial Reporting Standards available for use by New Zealand from 1 January 2005 and to have mandatory application from 2007.

The following is a brief summary of the standards relevant to financial instruments:

Standard 32: Financial Instruments: Disclosure and Presentation (IAS 32)

The New Zealand version of IAS 32 contains requirements for the presentation of financial instruments and identifies the information that should be disclosed about them.
There is a perception that IAS 32 is irrelevant for the majority of New Zealand entities, as most entities do not enter into complex financial instruments. However, IAS 32 is relevant to all entities as it affects whether a financial instrument is classified as equity or a liability in the statement of financial position. In the discussion paper, the FRSB highlights that some of the proposals for this standard differ significantly from current practice.

Standard 39: Financial Instruments: Recognition and Measurement (IAS 39)

The proposed NZ IAS 39 addresses how financial instruments are recognised and measured. This standard has a very wide scope and applies to all types of financial instruments unless they are explicitly excluded.

The proposed NZ IAS 39 is perceived by many as having a significant impact on financial reporting in New Zealand. The extent of the impact will depend on the nature of the financial instruments an entity enters into and how it currently accounts for them. Further revision of this standard in relation to the hedging of accounts was expected by 31 March 2004. To date, these have not been released.

For more information on the above standards and other proposed NZ IAS, visit the ICANZ website.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.