At its meeting today the Accounting Standards Board (ASB) agreed to issue an exposure draft (ED) proposing amendments to FRS 26 (IAS 39) ‘Financial Instruments: Recognition and Measurement’ and UITF Abstract 42 (IFRIC 9) ‘Reassessment of Embedded Derivatives’. The amendments would clarify the treatment of embedded derivatives when an entity reclassifies a hybrid financial asset out of the fair value through profit or loss category.

The ASB amendments arise as a consequence of the amendments proposed by the International Accounting Standards Board (IASB) ED ‘Embedded Derivatives’ published on 22 December 2008. The proposed amendment to IAS 39 and IFRIC 9 would require that an entity which is reclassifying a hybrid financial asset out of the fair value through profit or loss category would need to assess whether to separate the embedded derivative on the date of the reclassification but on the basis of the circumstances that existed when the entity first became a party to the contract. If the fair value of the embedded derivative that is to be separated cannot be reliably measured then the entire financial instrument must remain in the fair value through profit or loss category.

The ASB wants to ensure that FRS 26 and FRS 29 remain converged with IAS 39 and IFRS 7. In the Board’s view, the amendments do not alter the effect of the standards but remove a potential ambiguity.

The ASB intends to issue the above ED of amendments to FRS 26 and UITF 42 when the IASB has finalised its proposals.

1. The ASB is an operating body of the Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The main role of the ASB is to contribute to the establishment and improvement of standards for financial reporting. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments.
3. The ASB has eleven Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of backgrounds, are part-time.
4. The IASB amendments can be obtained from the IASCF Publications Department – e-mail: publications@iasb.org. Website: www.iasb.org.
5. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Technical Director) on 020 7492 2420 or Seema Jamil-O’Neill (Project Director) 020 7492 2422.