Key among the fifteen revised and improved standards issued by the IASB in December were the revised versions of IAS 32 ‘Financial Instruments: Disclosure and Presentation’ and IAS 39 ‘Financial Instruments: Recognition and Measurement’. On the assumption that the portfolio hedging changes will be agreed by the IASB in March, the critical path to the incorporation of these standards in the reporting regime for listed companies in 2005 now rests firmly with the European Commission.

What started life, in June 2002, asexposure drafts of relatively limitedscope reviews of these two standardsbroadened as the IASB foundcommentators were challengingaspects of the standards that the IASB had not proposed to amend.

After much redeliberation, the IASB has now produced the amended standards on financial instruments -althoughlimited changes to IAS 39,relating to the specific areas of portfolio hedging, are still to come in March 2004. Given the extent of therevisions to these standards, this is a considerable achievement. In the light of comments received, not only have many changes of substance been made; there has been considerable redrafting to add clarity and to make the standards easier to work with. Guidance material has been moved from the standard itself to an appendix of application guidance, and the IAS 39 implementation guidance that was published separately by the IASB has been comprehensively reviewed.

Adoption by the EU is the final step before these amended standards form part of the accounting regime that will apply for listed companies in 2005. The adoption process includes the need to arrange translation of the standards into the EU official languages, consideration by the 'technical expert group' of advisers referred to in the IAS Regulation, and approval by the Accounting Regulatory Committee. This process will inevitably take some months; any delay will create uncertainty for both preparers and users of financial statements - and ultimately, could damage the credibility of European financial reporting under the IAS Regulation. We would encourage Europe to set in hand at the earliest possible dates the various measures necessary to adopt these amended standards to ensure that there is no gaping hole in the accounting regime that will apply for listed companies in 2005. A prompt start to the translation process in all EU languages, coupled with an early indication from the ARC that it is minded to adopt would enable companies that will be applying the standards to make best use of the limited time that remains for implementation.

The ASB will be considering what changes to make to UK accounting standards on financial instruments now that the IASB has finalised its amended standards. It intends to build on the proposals made in FRED 23 and FRED 30, in the context of its broader plans for convergence between UK standards and IFRS, and expects to issue a consultation paper in the spring of 2004.

For more technical detail on the two revised standards, see pages 3-4.