The world will be watching next month to see how the International Accounting Standards Board’s (IASB) new financial instruments classification and measurement standard is received in Europe.
The rules will replace part of IAS 39 – Financial Instruments Recognition and Measurement, a standard so contentious it has been discussed and criticised by European national leaders and the G20.
Once the standard is released, it will be in the hands of European politicians to decide whether it will be applied in the EU.
Europe triggered a worldwide trend to adopt IFRS when it mandated the use of the standards for listed companies from 2005.
But European Financial Reporting Advisory Group chair Stig Enevoldsen said recently that if Europe does not endorse the classification and measurement standard, the question could be asked ‘is Europe still using IFRS?’
Several high profile figures in the UK profession have said the EC could easily move either way. An indicator towards the EC not endorsing the standard is the chilly reception to the IASB’s work from European finance ministers, particularly those from France and Germany. Indicators towards EC endorsement include pressure from the G20 for a single set of global standards and news the US Securities and Exchange Commission is working on its proposed road map for IFRS adoption with renewed purpose.
IASB chairman David Tweedie addressed EU finance minsters recently, saying the board has made changes since the exposure draft that respond to concerns from the EC.
The changes include allowing reclassification of financial instruments when business models change, which the EC says is essential.
Another EC concern that has been addressed was extended use of fair value measurement. Tweedie said the new standard will probably result in financial institutions that undertake traditional banking activities applying less fair value accounting.
The IASB has a delicate balance to strike in terms of pleasing Europe and maintaining independence. November will be an interesting month.