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Ten Years of IAS 39: What Next?

by François Masquelier, Chairman of ATEL

The ten years of IAS 39 have changed our lives as treasury managers. We have been involved with and using ‘hedge accounting’ for so many years that we have almost forgotten the days of local GAAP that went before it. In this article, we want to make some comments on the future IFRS 9 but also put together some of the thoughts of practitioners, treasury managers and academics on this financial instrument accounting standard that has revolutionised the way we carry out treasury management.

IAS 39 has changed our lives

Whatever IFRS 9 may come up with when its final and definitive version is released – expected in the second half of 2011 - no treasury manager can claim that IAS 39 has not changed his work and his methods of managing risk and using derivatives. As a natural optimist, I would even be tempted to talk of celebration rather than commemoration. IAS 39 has, in one way or another, changed all our lives as treasury managers, bankers or service providers (and not always for the good, some critics among us might say). Let’s think back to what we did before January 2001 and the type of derivative products that we dealt in then. Our derivative instrument portfolios have been considerably simplified and the most structured and most leveraged products have become fewer. We have become real mini-accountants and financial reporting specialists (see IAS 32 - IFRS 7). Could IAS 39 have perhaps brought us closer to operational activities and made us speak to the accountants more than we used to? In any case, no one can claim that IAS 39 has not had a major effect on our profession and our suppliers!

Son of IAS 39

IAS 39 and its offspring IFRS 9, whose impending arrival we await, are not just accounting standards - they almost represent a way of life. We have got used to this standard. We may have disliked it or even loathed it. We may have fought against it through the treasury associations and all of us have no doubt begged for some aspects of it to be changed, with greater or lesser success. We even hoped that the IASB would reduce its complexity (www.iasb.org). It has been one of the major challenges for treasury managers over the last ten years, and particularly since 2005, when IFRS was made mandatory for listed companies within Europe. IFRS 9 will still be complex, we are quite sure of that. We will still have the ‘hedge accounting’ exception for quite some time. In fact we now think that IFRS 9 may turn out to be a damp squib in spite of its long gestation period. But at the end of the day, is this not a manifestation of the wish of the majority to keep hold of what they have finally managed to bring under control and tame?

When IFRS 9 is adopted, we will still  have to wait for convergence with the US standards, US GAAP, another major challenge set by the G20.

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