The new standard establishes new requirements for classifying, recognizing and measuring financial instruments to replace those in IPSAS 29, Financial Instruments: Recognition and Measurement.

Among the improvements are simplified classification and measurement requirements for financial assets, a forward-looking impairment model, and a flexible hedge accounting model.

The standards-setter says IPSAS 41 provides users of financial statements with more useful information than IPAS 29, by applying a single classification and measurement model for financial assets that considers the characteristics of the asset's cash flows and the objective for which the asset is held.

In addition, it applies a single forward-looking expected credit loss model that is applicable to all financial instruments subject to impairment testing; and includes an improved hedge accounting model that broadens the hedging arrangements in scope of the guidance. The model develops a strong link between an entity's risk management strategies and the accounting treatment for instruments held as part of the risk management strategy.

Ian Carruthers, IPSASB chair, said: ‘The significance of government debt to global capital markets can often be ignored. IPSAS 41 is a major step forward in accounting for financial instruments, and responds to the problems with IPSAS 29 that were exposed by the global financial crisis.

‘It provides principles that appropriately reflect the economics of transactions involving financial instruments, replacing the more rules-based approach of its predecessor.’

IPSAS 41 is based on IFRS9, Financial Instruments, developed by the International Accounting Standards Board (IASB), but it also includes guidance specific to the public sector.

There are illustrative examples on issues such as financial guarantees issued through non-exchange transactions; concessionary loans; equity instruments arising from non-exchange transactions; and fair value measurement.

IPSAS 41 Financial Instruments is here

Report by Pat Sweet