The European Financial Reporting Advisory Group (EFRAG) has embraced new financial standards on financial instruments, and those standards could come into law by the end of the year.
Reports this week said the Official Journal of the European Union is expected to include the International Financial Reporting Standard 9 (IFRS 9): Financial Instruments standard by the new year.
The complex and technical standard but would be a significant improvement over previous rules (as currently outlined in the International Accounting Standard 39 (IAS 39): Financial Instruments: Recognition and Measurement), particularly for “basic lending instruments, in the impairment of financial assets and hedge accounting”, according to EFRAG.
EFRAG will likely issue its final endorsement of the new standards in the first quarter of 2017. This means time is running out for EU companies to research and understand the new standard — and to react appropriately.
IFRS 9 was initiated among the G20 leaders in 2008, largely in response to the global financial crisis.
Basically, the new standard will change the way businesses must report cash and other assets they trade.
According to the IFRS website, the revised standard would change the way companies need to report and account for their hedging activities based on risk management of that hedging, making it easier to reflect that risk in their financial statements.
“As a result of these changes,” the site notes, “users of the financial statements will be provided with better information about risk management and the effect of hedge accounting on the financial statements.”