On 12 November 2009, the IASB issued IFRS 9 “Financial Instruments”. This is the first stage of a three stage project that will probably make or break the international reputation of the IASB and its deeply impressive chairman, Sir David Tweedie.
The IASB inherited IAS 32 and IAS 39 from its predecessor, the IASC. IAS 32 and IAS 39 have been rather markedly unloved ever since their introduction. IAS 39 in particular has been criticised for taking fairly complicated financial transactions and making them more complicated still with piecemeal rules for different types of transaction. Although it definitely had its supporters, many people said that the perceived complexity of IAS 39 made it insufficiently understandable by most people to be much real use.
Here at ExP, we believe that IAS 39 has had a slightly unfair press over the years. It does have its faults for sure, but it also has a decent logic at its core. The new IFRS (which will come in three parts over the next year; the next two stages to deal with impairments and the third phase to address hedging rules) has a tough job. Make the rules simpler and it will create loopholes that will be exploited by creative accounting. Close every possible gap and it will result in an accounting standard that puts on weight each year with minor amendments and ends up not understandable.
The attempts at simplification are honourable. We’ll wait to see with interest how well they work. But well done to the IASB for keeping calm in the global financial crisis that many commentators blamed the accountancy profession for making much worse. They were under huge pressure to make change and they appear to have done a good job in the time they had available.