CFM21506 - Accounting for corporate finance: International Financial Reporting Standards: history of IAS 32, IAS 39 and IFRS 9

Origins of IAS 32 and IAS 39

The original version of IAS 32 was issued in 1995. It underwent limited revisions in 1998 and 2000.

IAS 39 was originally issued in March 1998, and was subject to revision in 2000. It was only mandatory for periods beginning on or after 1 January 2001. IAS 39 was by far the most difficult standard the International Accounting Standards Board (IASB) had produced, and for this reason in 2000 extensive implementation guidance was published in the form of questions and answers.

In 2002, as part of its ‘improvements project’, the IASB published an Exposure Draft of amendments to both IAS 32 and IAS 39 and revised standards were issued in December 2003, together with application and implementation guidance.

The IASB made further amendments to IAS 39 during 2004, 2005 and 2008, and to IAS 32 in 2005 and 2008. As a result of the amendments to IAS 32 in August 2005, all disclosures relating to financial instruments were relocated to IFRS 7.

Since 2003, IAS 32, IAS 39, and their accompanying documents, have also been amended by other IFRSs and IFRICs. The same applies to IFRS 7 since 2005.

References in this guidance to the standards are to the December 2003 revision unless otherwise stated.

EU adoption and UK implementation of IAS 32 and IAS 39

The EU voted to adopt IAS 39 in October 2004, but in an amended form. The amendment made by the EU was not to adopt two areas of the IASB standard (known as ‘carve outs’):

  • Entities could not avail themselves of the option of measuring non-derivative financial liabilities (other than those held for trading) at fair value (see CFM21720);
  • The requirements of IAS 39 with respect to ‘macro hedging’ were relaxed.

IAS 32 was adopted by the EU one month after its adoption of IAS 39.

In November 2005, following the June 2005 amendment to IAS 39 on the fair value option (see CFM21540) the EU rescinded the first carve out above and adopted the relevant IAS 39 provisions without qualification; the second carve out remains.

Developments to IAS 39 since the December 2003 revision

  1. March 2004, Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk - see CFM27180.
  2. December 2004, Transition and Initial Recognition of Financial Assets and Financial Liabilities.
  3. April 2005, Cash Flow Hedge Accounting of Forecast Intragroup Transactions - see CFM27040.
  4. June 2005, The Fair Value Option - see CFM21540. This is the only amendment endorsed by the EU.
  5. August 2005 Financial Guarantee Contracts (also amends IFRS 4) - see CFM21720.
  6. July 2008 Eligible hedged items
  7. October 2008 Reclassification of Financial Assets (amendments to IAS 39 and IFRS 7) see CFM21600 (nb. the amendment was subsequently revised in November 2008 to clarify the effective date and transition).

EU adoption of IFRS 9

IAS 39 has now been replaced by IFRS 9 for the recognition and measurement of financial instruments. IFRS 9 introduces a principles-based approach to the recognition and measurement of financial instruments

IFRS 9 was issued by the IASB in July 2014 with this version being endorsed by the EU in November 2016 with an effective date for periods beginning on or after 1 January 2018.

The IASB has subsequently amended IFRS 9 for the accounting for financial assets that contain a prepayment option that may result in negative compensation. This amendment was endorsed by the EU in March 2018 with an effective date for periods beginning on or after 1 January 2019.

For fair value hedges of interest rate exposure of a portfolio of financial assets or financial liabilities (and only for such a hedge) IFRS 9 allows an entity to apply the hedge accounting requirements in IAS 39 instead of those contained in IFRS 9.