The response by The Association of Corporate Treasurers to the Accounting Standards Board (ASB) on the JWG proposals for accounting for financial instruments reflects the views of its members, the majority of whom are responsible within their companies for the management of financial instruments. At a recent meeting with the ASB, around 40 Fellows and Members of the Association expressed with some force their concern that the approach set out in the proposals would confuse rather than enlighten investors and other users of financial accounts.
The essential requirement of accounting for financial instruments is to allow readers of accounts to distinguish between those instruments that reduce risk and those that increase it, i.e. to identify what is hedging and what is speculation. The proposals as currently structured do not achieve this. The Association’s response outlines a number of areas where a fair value approach is impractical or produces figures on the face of the profit and loss account that could mislead readers as to the company’s risk management strategy and performance. The proposals would distort the performance statement by including unrealised restatements of value which reflect only one side of transactions designed to reduce risk. They will not tell analysts and investors whether the financial instruments in place reduce or increase risk for the company.
The Association believes that the international accounting standard setters should focus on the reformulation of the performance statement before any further consideration of fair value accounting. The debate over how companies report performance needs to develop much further before any practical progress can be achieved on accounting for financial instruments.
It seems that little consultation has taken place so far with the corporate sector in the formulation of the JWG proposals and the Association and its members look forward to contributing to the on-going debate.
ACT Comments on JWG Proposals for Accounting for Financial Instruments - Full Text
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