EFRAG field testing for hedge accounting provisions proposed by IFRS 9

IFRS 9, the long awaited accounting standard

 In Charles Perrault’s folktale, Bluebeard’s wife asks many time “Anne, Sister Anne, do you see anyone coming?” Like Sister Anne, European treasurers keep asking EACT whether it sees something coming in terms of finance instruments accounting standard.

 1.       IFRS 9 is slow in coming

Though we’ve scoured the horizon, nothing seems to be coming.  However, the long-awaited final version of IFRS 9 will surely be published someday. The pioneers of IAS 39 have been applying that standard for almost 11 years and have been waiting for its successor, IFRS 9, for several years now. Patience is one of the qualities that modern treasurers truly need, especially when it comes to accounting standards and regulations.

There are several reasons for this delay. The global economic crisis has undoubtedly influenced the priorities of the IAS Board. The recurring problem of IASB staff turnover has also played a role. However, we have been told that IFRS 9 will soon be finalised. Awaiting that, it should be noted that the IASB has reopened the first Exposure Draft (E.D.) on “Classification & Measurement” in order to make a few changes and improvements. The part of the second E.D. dealing with the impairment model should be finalised in the summer of 2012. Finally, the macro-hedging part will, as has been discussed before, be separated from the rest and dealt with in its own E.D., which will (likely) be released in 2013.

So, it will have taken four years to develop and release this standard, which is both sensible and crucial, especially since the 2008 financial crisis continues to affect markets and their volatility.

2.       Operationality tests to be performed by EFRAG

As part of the EU’s endorsement of the new IFRS 9 standard, EFRAG is responsible for verifying whether these new hedge accounting rules could be (easily) applied by preparers. It also wants to check the relevance and usefulness of these new disclosures for users. EFRAG has launched a process to identify a few volunteer companies who will answer a questionnaire aimed at checking the operationality of the IASB proposals and changes. EFRAG will also measure and verify the relevance of the information provided to users of annual reports.   At present, EFRAG has identified 40 volunteer companies to Perform these tests.

This is a real opportunity for corporate treasurers to have their voices heard and to take part in finding the solution. We highly recommend participation in this process: Be part of the solution. The EFRAG assessment will count for a great deal, and it will be useful to help them with it. After this long and, hopefully, final round before the publication of IFRS 9, we can hope that the EU will endorse the new standard as is, without any carve-outs.

3.       January 2015

If the standard is indeed finalised and endorsed by the European Commission by the end of the year, we can hope that it will take effect in January 2015. We will still need to be very patient before we are able to adopt what some consider being the best standard yet on financial instruments. So will IFRS 9 be the saviour of hedge accounting?  After so many delays, some of the momentum and enthusiasm has faded. Many treasurers aren’t even talking about it anymore.  However, we believe that it will provide a real improvement in the accounting rules for financial instruments. If all goes well, we will have worked with IAS 39 for 14 years. We have become so used to it that some people are now afraid of the changes that will be made. But the son of IAS 39 (i.e. IFRS 9) will truly be “better” for all treasurers. Let’s remain confident and patient. For those of us who have stayed mobilised, participating in the field tests and questionnaires that EFRAG rolls out this summer is a way to move things forward and to make our opinions known. Let’s take advantage of the opportunity!

 F. Masquelier, ATEL Chairman