CFM21010 - Accounting for corporate finance: International Accounting Standards: overview

Overview of International Accounting Standards

The relevant International Accounting Standards relating to financial instruments are IAS 32 (‘Financial Instruments: Presentation’), IAS 39 (‘Financial Instruments: Recognition and Measurement’), and IFRS 7 (‘Financial Instruments: Disclosures’). Accounting for financial statements is one of the most complex and controversial areas in accounting. It is an area that has seen many changes and one which is still evolving.

Every entity has financial instruments, even if it's only cash, debtors and creditors. Financial instruments also include investments and long-term debt, as well as derivatives. So, it is not just the financial sector that is affected by IAS but many service and commercial businesses throughout the length and breadth of the country.

For guidance on when the IAS comes into force see CFM20020.

The majority of IAS 32, IAS 39 and IFRS 7 have been incorporated into UK GAAP by virtue of FRS 25, FRS 26 and FRS 29. Details of when the changes are effective are at CFM20030. CFM21040 gives you more detail.

IAS 39 is in the process of being replaced by IFRS 9. Current UK standards are also in the process of being replaced by the FRSME. This process may lead to significant changes to accounting for corporate finance transactions. The guidance in this manual will be updated once revised standards have been finalised and are available for adoption in the UK.

This guidance refers to IAS 32, IAS 39 and IFRS 7 throughout. Most of it is, however, equally relevant to the corresponding UK provisions.

This part of the guidance gives some detail on the history of the standard, terms used and basic concepts.

Detailed guidance on IAS 32 and IFRS 7 is at CFM21200+

Detailed guidance on IAS 39 is at CFM21500+

IAS also has some detailed provisions on derivatives (CFM24000+), hybrid debt (CFM25000+) and hedging (CFM27000+). The effect of IAS in those areas is dealt with separately in the dedicated guidance to those subjects.