At its meeting today 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.

The amendments arise as a consequence of the amendments to IAS 39 and IFRS 7 published by the International Accounting Standards Board (IASB) on 13 October 2008. The amendments issued by the IASB address the desire expressed in a number of quarters, including EU leaders and finance ministers, to reduce the differences between IFRS and US Generally Accepted Accounting Principles.

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.

In moving to issue the amendments, the ASB – like the IASB – has not followed its normal due process, given the need to take urgent action to address the rare circumstances of the current credit crisis. The ASB wants to ensure that entities applying FRS 26 and FRS 29 have the same ability to be able to make reclassifications as those applying IFRS.

Entities may use the reclassification amendments, if they so wish, from 1 July 2008.

In issuing the amendments, ASB Chairman Ian Mackintosh said:

“The IASB is to be congratulated in responding so quickly to the calls to take urgent action to meet the concerns raised regarding the issue of reclassification. The ASB is taking similar action to ensure that entities reporting under UK GAAP have the same ability”.

1. The ASB is an operating body of the Financial Reporting Council (FRC), the UK’s independent regulator responsible for promoting confidence in corporate reporting and governance. Its functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
2. The main role of the ASB is to contribute to the establishment and improvement of standards for financial reporting. The ASB collaborates with accounting standard-setters from other countries and the International Accounting Standards Board (IASB) both in order to influence the development of international standards and in order to ensure that its standards are developed with due regard to international developments. 
3.  The ASB has eleven Board members, of whom two (the Chairman and the Technical Director) are full-time, and the remainder, who represent a variety of backgrounds, are part-time.
4. Hard copies of the amendments will be available shortly and can be obtained at a cost of £10.00 (the same price as charged by the IASCF), post-free, from FRC Publications, 145 London Road, Kingston upon Thames, Surrey KT2 6SR (020 8247 1264). Web: www.frcpublications.com.
5. The IASB amendments can be obtained from the IASCF Publications Department – e-mail: publications@iasb.org. Website: www.iasb.org.
6. Press enquiries should be addressed to Ian Mackintosh (Chairman) on 020 7492 2434, David Loweth (Technical Director) on 020 7492 2420 or Seema Jamil-O’Neill (Project Director) 020 7492 2422.