IAS 39: Financial Instruments: Recognition and Measurement was an international accounting standard which outlined the requirements for the recognition and measurement of financial assets, financial liabilities, and some contracts to buy or sell non-financial items. It was released by the International Accounting Standards Board (IASB) in December 2003 as a revision of the original 1998 version. The standard was largely replaced in 2014 by IFRS 9, which became effective for annual periods beginning on or after 1 January 2018. Despite this replacement, IAS 39 remains relevant for entities that choose an accounting policy to continue to apply the hedge accounting requirements of IAS 39 instead of IFRS 9.
The standard was adopted by the European Union in 2004, though with a specific "carve-out" regarding macro-hedging requirements. In 2005, the EU also introduced the fair value and hedging provision of the amended version of IAS 39 to align with international practices.
The EU version was changed at the end of 2008 in response to the 2008 financial crisis, allowing for the reclassification of certain financial instruments under stressed market conditions. The comparative accounting measures in the United States are provided by FAS 133 and FAS 157, which serve similar functions for recognition and measurement. The Financial Accounting Standards Board (FASB) released a 'FASB Staff Position' statement in October 2008 to align fair value measurement practices with the IASB's guidance in response to the global crisis.
Scenario: An entity purchases shares for $10,000 for short-term trading. At year-end, the market value has increased to $11,500.
Scenario: An entity buys a bond for $50,000 with a fixed maturity and the intent to hold it. Effective interest earned for the period is $2,500.
Scenario: An entity provides a loan of $20,000 to a customer. An impairment test at year-end suggests that only $18,000 is recoverable.
Scenario: An entity buys shares for $30,000 as a long-term investment (not trading). At year-end, fair value is $32,000.
IAS 39 establishes principles for recognizing and measuring financial assets, financial liabilities, and some contracts to buy or sell non-financial items. While most disclosures are in IFRS 7, the measurement categories defined here must be clearly identified.