International Accounting Standard 39

• Issued: in 1998; re-issued in 2003, followed by amendments
• Effective date: 1 January 2005
• Superseded by IFRS 9 Financial Instruments effective 1 January 2018
• What it does:
  • • It establishes principles for recognition and measurement of financial instruments and some contracts to buy or sell non-financial items.
    • It defines key terms such as amortized cost of a financial asset or financial liability, the effective interest method, transaction cost, hedged item, firm commitment, forecast transaction, hedging instrument, hedge effectiveness, etc. Please note that definitions of financial instruments are set by IAS 32.
    • It classifies financial assets into 4 categories:
      1. Financial assets at fair value through profit or loss;
      2. Available-for-sale financial assets;
      3. Loans and receivables; and
      4. Held-to-maturity investments.
    • It classifies financial liabilities into 2 categories:
      1. Financial liabilities at fair value through profit or loss. This category has 2 subcategories:
         1. Designated on initial recognition at fair value through profit or loss; and
         2. Held for trading.
      2. Other financial liabilities measured at amortized cost using the effective interest method.
    • It specifies measurement rules and accounting treatment for each category, including impairment of financial assets.
    • IAS 39 deals with derecognition of financial instruments and outlines derecognition decision tree to help decide whether a financial asset shall be derecognized or not. Rules for derecognition of financial liabilities are more simple than those related to financial assets.
    • It contains the rules for hedge accounting, specifically for 3 types of hedges:
      1. Cash flow hedge;
      2. Fair value hedge;
      3. Hedge of the net investment in a foreign operation
    • IAS 39 contains also an appendix with application guidance related to specific issues in the Standard.
    • Furthermore, IASB issued accompanying illustrative examples and extensive guidance on implementing IAS 39.

• Summary of IAS 39 Financial Instruments: Recognition and Measurement
• IAS 39 vs. IFRS 9
• Hedge accounting: IAS 39 vs. IFRS 9

As the standard IAS 39 has been replaced by IFRS 9 effective 1 January 2018, please refer to IFRS 9 Financial Instruments for more articles and materials on this topic.

As the standard IAS 39 has been replaced by IFRS 9 effective 1 January 2018, please refer to IFRS 9 Financial Instruments for questions and answers on this topic.

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