CFM16120b - Accounting for financial
instruments: IAS 32 and IAS 39: FVTPL designation for relevant
information and UK GAAP
Implementing the option to FVTPL in FRS 26
In October 2005 the ASB published and amendment to FRS 26,
‘
Financial instruments: . The amendment
aligns FRS 26 with IAS 39, as part of the ASB’s strategy for
convergence with IFRS. This implements the IASB’s fair value
option amendment to IAS 39 – see
CFM16120a.
The ASB has also incorporated transitional provisions from
amendments to IFRS 1, ‘
First-time adoption of International Financial
Reporting Standards’, so that UK entities adopting FRS
26 are subject to the same transitional requirements as first time
adopters of IFRS.
The amendment is effective for accounting periods commencing
on or after 1 January 2006, with earlier application encouraged.
There are a number of clarifications/differences between the
FRS 26 amendment and the equivalent amendment to IAS 39:
- Under the IAS 39 amendment, an entity must
take into account criteria set out in IAS 8, ‘
Accounting policies’, when
deciding whether to designate items as FVTPL. As there is no UK
standard equivalent to IAS 8, the ASB has amended the guidance to
refer to the need to consider objectives against which an entity
should judge the appropriateness of accounting policies as set out
in FRS 18, ‘
Accounting policies’;
- The IASB’s definition of key
management personnel is contained in IAS 24, ‘
Related party . In the UK key
management is defined in FRS 8, ‘
Related party disclosures’. For
the purpose of defining key management within FRS 26 the ASB
considered it appropriate to use the IASB’s definition which
is defined as:
‘…
those persons having authority and
responsibility for planning, directing and controlling the
activities of the entity, directly or indirectly, including any
director (whether executive or otherwise) of the entity. For
example the entity’s board of directors and chief executive
officer’.
- The ASB has reservation over the value of
some of the disclosures required by the IASB’s amendment to
FRS 25; and so the ASB has not, therefore implemented the
disclosure requirements in full. And the FRS 26 amendment omits
some of the transition requirements contained in the IAS 39
amendment for an entity that applies the fair value option for
annual periods beginning before 1 January 2006.
Otherwise the amendment to FRS 26 incorporates the provisions of
the amendment to IAS 39 set out in
CFM16120a.
