(December 14 – 15:20 ET) – Canada’s Accounting Standards Board today released a draft proposal for comment on a global accounting standard for financial instruments.

The proposed standard is based on fair-value measurement where a financial asset (or liability) is measured at its current market value as opposed to its historical cost. This standard is intended to apply to all entities and all financial instruments. Comments are due by June 30, 2001.

“The importance of having a global standard for financial instruments can not be overemphasized,” said Tricia O’Malley, chair of the AcSB. “This is a clear case of needing global standards for a global marketplace — and when it comes to financial instruments, such as bonds, derivatives and stocks, the market truly is a global market. Canada must move with global change.”

The AcSB says the proposed new standard would provide investors and others with a clearer picture of an entity’s financial situation and value, as well as its risk management practices. It would also improve the accountability of management, reduce opportunities to manage earnings, and enhance disclosure overall.

“Adoption of the proposals would result in significant change to accounting standards in Canada,” O’Malley said. “Moving to a fair-value accounting model would require measurement of all financial instruments at fair value with gains and losses arising from changes in fair value recorded in the income statement. This represents a dramatic change to the way we account for financial instruments.”

Advances in financial risk management and information technology, coupled with the globalization of capital markets have led to a re-thinking of the traditional accounting treatment of financial instruments. The AcSB says Canada does not presently have adequate accounting standards for recognition and measurement of financial instruments.
-IE Staff