August 15, 2018
Published: The Accountant
The International Public Sector Accounting Standards Board (IPSASB) released IPSAS 41 which aims to improve the relevance of information for financial assets and financial liabilities.
IPSAS 41 Financial Instruments establishes new requirements for classifying, recognising and measuring financial instruments to replace those that exist in IPSAS 29, Financial Instruments: Recognition and Measurement.
The report improves the standard’s requirements by introducing:
– 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;
– Applying a single forward-looking expected credit loss model that is applicable to all financial instruments subject to impairment testing; and
– Applying 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.
IPSASB’s chair Ian Carruthers 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 also includes public sector-specific guidance and illustrative examples on; financial guarantees issued through non-exchange transactions, concessionary loans, equity instruments arising from non-exchange transactions and fair value measurement.