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The International Accounting Standards Board (IASB) today published for public comment a discussion paper Reducing Complexity in Reporting Financial Instruments.

The existing requirements for the reporting of financial instruments are widely regarded as difficult to understand, interpret and apply and constituents have urged the IASB to develop standards that are principle-based and less complex. The document is the first stage in a project which aims to replace IAS 39 “Financial Instruments: Recognition and Measurement”. 

The discussion paper analyses the main causes of complexity in reporting financial instruments and proposes possible intermediate approaches to address some of them.

Those approaches seek to improve and simplify measurement and hedge accounting by amending or replacing the existing requirements.

Furthermore the discussion paper sets out the arguments for and against a possible long-term approach that would use one measurement method for all types of financial instruments in the scope of a financial instruments standard.

The IASB seeks views on both the possible long-term and intermediate approaches and is interested to hear about possible alternatives on how it should proceed in developing new standards for reporting financial instruments that are principle-based and less complex.

The publication of the discussion paper also fulfils the commitment set out in the Memorandum of Understanding between the IASB and the US Financial Accounting Standards Board (FASB) A Roadmap for Convergence between IFRSs and US GAAP - 2006-2008. The discussion paper will be considered for publication by the FASB for comment by its constituents.

Introducing the discussion paper, Sir David Tweedie, IASB Chairman, said: “IAS 39, which the IASB inherited from its predecessor body, is far too complex. We are determined to simplify and improve IAS 39 by creating a principle-based standard. Those who believe in reducing complexity in accounting standards have now the opportunity to shape the way ahead”.

The IASB invites comments on the discussion paper by 19 September 2008. For more details on the project, see the Financial Instruments Web pages.