The International Accounting Standards Board (IASB) published for public comment an exposure draft of proposals to improve financial instrument accounting. The proposals form part of the IASB’s comprehensive review of financial instrument accounting. The proposals, which the IASB believes will significantly reduce complexity and make it easier for investors to understand financial statements, address how financial instruments are classified and measured. The proposals also answer concerns raised by interested parties during the financial crisis (for example, eliminating the different impairment approaches for available-for-sale assets and assets measured using amortised cost).

The IASB plans to finalise the classification and measurement proposals in time for non-mandatory application in 2009 year-end financial statements. The proposals also respond directly to and are consistent with the recommendations and timetable set out by the G20 leaders and other international bodies. In order to be responsive to calls for improved accounting, the IASB decided to split the comprehensive project into three phases (the other phases address the impairment methodology and hedge accounting). The IASB plans to complete the replacement of IAS 39 during 2010, although mandatory application will not be before January 2012.

Introducing the exposure draft, Sir David Tweedie, Chairman of the IASB, said:
"The financial crisis has demonstrated that investors need to be given a better understanding of information presented in the financial statements about financial instruments held or issued by a company. Making it easier for investors to understand financial statements is an essential ingredient to the recovery of investor confidence.
The proposals today are an important first step in this process. They also respond directly to concerns raised about the accounting for financial instruments. In finalising these proposals we will continue to work jointly with the US standard-setter, the Financial Accounting Standards Board, to achieve a common and improved accounting standard on financial instruments".
 
The IASB invites comments on the exposure draft, ED/2009/7 Financial Instruments: Classification and Measurement, by 14 September 2009. The exposure draft is available on the ‘Open for Comment’ section on www.iasb.org

The IASB plans to review the proposals in the light of respondents’ comments and to issue the resulting amendments to IFRSs before the end of 2009.