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October 27, 2010

IASB adds new IFRS 9 requirements

The International Accounting Standards Board (IASB) has added requirements to IFRS 9, a standard that deals with financial instruments, which will complete the measurement phase to replace IAS 39.

The new requirements issued by the IASB address the problem of volatility in P&L statements arising from an issuer choosing to measure its own debt at fair value.

With the new requirements, an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity’s own credit risk in the other comprehensive income section of the income statement, rather than within P&L.

“The new additions to IFRS 9 address the counter-intuitive way a company in severe financial trouble can book a large profit based on its theoretical ability to buy back its own debt at a reduced cost,” IASB chairman David Tweedie said.

The IASB is aiming to complete the second and third phases of IFRS 9 by 30 June 2011. This will involve adding the impairment and hedge accounting requirements to IFRS 9.

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