CFM16065 - Accounting for financial instruments: IAS 32 and IAS 39: scope of IAS 32 and IAS 39

Entities, assets and liabilities within the scope of IAS 32 and IAS 39

IAS 32 and IAS 39 apply to all entities that prepare financial statements, although the ASB's proposals for UK implementation of the standards exempt small companies that follow the FRSSE (Financial Reporting Standard for Smaller Entities). (Since, however, this manual is primarily concerned with companies within the charge to corporation tax, the word "company" is often used in this guidance rather than the more general "entity"). They also apply to all financial instruments, with some exceptions that are summarised at CFM16065a.

Non-financial assets and non-financial liabilities are outside the scope. These include physical assets such as stock-in-trade; property, plant and equipment; leased assets; intangibles, such as patents and trademarks; prepayments for goods or services; non-contractual liabilities such as taxes; and minority interests. Commodities, such as gold bullion, are also outside the scope.

IAS 39 does apply to contracts for such items that can be settled net in cash or another financial instrument, except those that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the company's expected purchase, sale or usage requirements.

If, however, a company grants an option giving someone else the power to buy or sell a non- financial asset, with an alternative for cash settlement, the company has no say over whether it delivers, or takes delivery of, the asset – that will be up to the option holder. The company therefore cannot claim that it wrote the option for the purpose of receipt or delivery of the asset, and such an option will always be within IAS 39.

CFM16065b gives examples.