IASB proposes derecognition improvements

31 Mar 2009

The International Accounting Standards Board is urging public comment on draft proposals to improve the procedures surrounding entities that remove financial instruments from their financial statements. As it stands now, entities have derecognition requirements that allow them to remove financial instruments from their statements if they no longer control that financial asset or if they no longer have an obligation to settle a financial liability. The IASB is now proposing additional disclosures, which it says will allow investors, shareholders and other users of the financial statements to gain a better picture of the risk associated with the assets, especially in situations where an entity has an ongoing involvement in a financial asset that would usually be removed under the requirements. Following proposals made by the IASB in December 2008, the proposals are an additional step towards completing its review of off-balance sheet activities in response to concern expressed by G-20 leaders at a conference in Washington in 2008 about special structures used in particular by banks. The IASB will now hold public round tables to obtain opinion on its derecognition and consolidation proposals and to develop understanding of interaction between the two projects. IASB chairman Sir David Tweedie, said market turmoil has 'highlighted the urgency of the matter and we have accelerated our work'. 'Financial structures have become increasingly complex and sophisticated, creating the need for improved ways of assessing whether an entity should derecognise assets or not. The financial crisis has also shown that users of financial statements should require better information to understand any remaining risks related to assets that are off-balance sheet,' he added.