Institute lodges submission on Financial Instruments Complexity  
 
Today the Institute lodged a submission, prepared jointly with CPA Australia, to the AASB and the IASB on the IASB Discussion Paper (DP) Reducing the Complexity in Reporting Financial Instruments. Click here to download the submission. 
 
The DP outlines various approaches to reducing the complexity related to the reporting of financial instruments, which includes intermediate and long-term solutions with respect to measurement and hedge accounting. We do not support an intermediate solution to measurement, as we do not believe that any intermediate solution would reduce complexity. We do however support an intermediate solution to simplify hedge accounting, with respect to documentation and effectiveness testing. We believe that further analysis is required in order to determine a long-term solution with respect to measurement, in conjunction with the ongoing work on the Conceptual Framework project. 
 
28 March 2008 
The AASB has released the IASB discussion paper ‘Reducing Complexity in Reporting Financial Instruments’ for comment. It is available for download from the AASB website (pdf) and comments to the AASB for input into an Australian submission are sought by 22 August 2008. 
 
The existing requirements for the reporting of financial instruments are widely regarded as difficult to understand, interpret and apply and constituents have urged the IASB to develop standards that are principles-based and less complex. 
 
The discussion paper examines the main causes of complexity under IFRSs today and concludes that the long-term solution is a single measurement principle for all financial instruments within the scope of a standard. However, many issues and concerns must be addressed before a general fair value measurement requirement could be introduced. Consequently, the paper suggests possible intermediate approaches that would improve and simplify measurement and hedge accounting requirements relatively quickly – including any or a combination of:

• amending the existing measurement requirements in IAS 39, for instance, by reducing the number of categories of financial instruments  
  
• replacing the existing IAS 39 measurement requirements with a fair value measurement principle and some optional exceptions to fair value measurement
 

• simplifying hedge accounting