“One of the important provisions of the new guidelines that may have a significant impact on the industry is the accounting treatment for derivatives and hedging relationships, which shall be accounted for in accordance with PAS 39,” BSP said in a press release.
Under IAS 39, all derivatives have to be reported as on-balance-sheet items, and those not held as hedging instruments will be classified as ‘held for trading’ with mark-to-market gains or losses recognised in the income statement. To qualify as hedging instruments, derivatives have to comply with strict criteria in terms of the designation, documentation and effectiveness of the hedge.
IAS 39 has been effective since 1 January 1998, and the standard has been revised several times to increase the transparency of derivatives accounting. The most recent amendment was made on 18 August, when its scope was extended to include financial guarantee contracts.
In Europe, all listed companies are required to be IAS compliant by December 31, 2005. Asia is also moving towards the IAS standard, although the pace varies across markets.