IAS 39 still unacceptable, says European official

Frits Bolkestein, European commissioner for the internal market, taxation and customs union, said last week that standards for the treatment of derivatives are still not suitable for adoption, despite recent concessions by the International Accounting Standards Board (IASB), Risknews, sister publication, FX Week , reports.

"Difficult discussions [with the IASB] are continuing over the two standards," he said at last week’s Council of Economics and Finance Ministers in Brussels. The Council approved Bolkestein’s efforts to seek an agreement with the IASB, and invited him to continue to pursue the changes they deem necessary.

Financial instruments standards IAS 32 and 39 are due for adoption by all listed EU companies in 2005, but the commission fears they will cause excess volatility in financial statements, which will destabilise stock markets.

The IASB has been under pressure from politicians and companies to change the treatment of derivatives. Revisions were published last month in response to this, but these have not allayed concerns. The revisions brought the International Accounting Standards closer to the equivalent standard under US generally accepted accounting principles (GAAP), but the IASB has not adopted the US version’s exception for the internal netting of hedges. Corporate treasuries previously said this exception would remove a significant amount of potential volatility in accounts.

The IASB has confirmed that it is still considering the issue of macro hedging - where a whole portfolio of different instruments is hedged on a net basis - and discussed the issue further at its board meeting last week.

All International Standards are due for final publication in March, but will not be adopted until approved by the European Commission. Bolkestein suggested that a working group might have to reconsider the standards before approval is given.