Banking news

The Accounting Standards Board (ASB) have an interesting press release on their website. The ASB announce that they are to issue Amendments to Permit Reclassification of Financial Instruments. Sounds exciting doesn't it? Well in fact it is. The announcement in fact tells the world that the

"Accounting Standards Board (ASB) approved amendments to FRS 26 (IAS 39) ‘Financial Instruments: Recognition and Measurement’ and FRS 29 (IFRS 7) ‘Financial Instruments: Disclosures’ that would permit the reclassification of certain financial instruments."

What amendments? There are two:

"The amendments permit the reclassification of:

* certain held-for-trading non-derivative financial assets out of the Fair Value Through Profit or Loss (trading) category in rare circumstances. What is meant by ‘rare’ is not dealt with in the amendments, but in its press release of 13 October, the IASB notes that the deterioration of the world’s financial markets that has occurred during the third quarter of the year is a possible example of rare circumstances; and

* certain financial assets to the loans and receivables category (and so measured on a cost basis) if the entity has the intention and ability to hold them for the foreseeable future or until maturity."

I think some explanation is in order.
I have blogged before that the requirement to "mark to market" on a daily basis has exacerbated some of the market falls we have experienced over recent weeks. This amendment means that financial entities will have a one-off opportunity to reclassify certain financial instruments (not derivatives) as non-trading (held to maturity) with a value which can be backdated as far back as 1 July.

Any financial entity that takes advantage of this amendment should benefit from being able to avoid large daily fluctuations on their Profit and Loss account and the markets will benefit from a break in the downward spiral caused by panic resulting from the "losses" arising from daily "marking to market".


This amendment first came to my attention Accountacy Age three weeks ago when I read that

"EU finance ministers have reiterated calls for banks to be allowed to reclassify assets in line with current US practice."

If you want more information on this matter then I suggest a read of the relevant page on the IASB's website and if you want some commentary then Accountancy Age's report on Lord Turner's FT interview may also be of interest.