Hedge Accounting: "Drop FRED23 and move straight to IAS39", ACT urge ASB

As corporate treasurers typically have the key responsibility for managing
financial instruments within UK listed companies, the response to FRED23 of
the Technical Committee of The Association of Corporate Treasurers (ACT),
their professional body, is of particular interest.

The ACT's Technical Committee is totally in agreement with the Accounting
Standards Board's (ASB's) stated strategy of ensuring an orderly transition
from existing UK standards to international accounting standards. It is for
this very reason that the ACT believes the best interests of UK listed
companies would be served through FRED23 not being applied and for companies
to move direct to IAS39 in accordance with the European timetable rather
than that proposed by FRED23.

In its response to the ASB, the ACT states that it does not "see any sense"
in listed companies implementing FRED23 when the implementation of IAS39
will follow on so soon afterwards. If FRED23 were issued in January 2003,
there would be at least a six-month period before its adoption, in say July
2003. Listed companies will need to have made preparations for the
implementation of IAS39 from 2004. Therefore, for listed companies, the
ACT believes that it is more logical to move straight to IAS39
implementation, rather than to adopt FRED23 approximately six months
earlier. A requirement to apply FRED23, closely followed by IAS39, with
the possibility of two restatements, could have a damaging effect on
perceptions of the accounting profession.

The ACT supports the introduction of a standard on hedge accounting that is
more in line with both International (IAS39) and US (FAS133/8) practice.
The proposed accounting principles are in line with many of the treasury
policies, procedures and controls that companies already have in place and
will enforce rigorous documentation of hedging activities within a stated
risk management framework.

The ACT encourages the ASB to define what is meant by "highly probable" in
relation to cash flows and to draft such a definition to reflect the
practical reality of budget and planning cycles. Again, such an approach
will further align accounting with good treasury management practice.

Richard Raeburn, Chief Executive of the ACT said "We hope that the ASB will
respond to our pragmatic view of the advantages for listed companies of
moving straight to IAS39 implementation and drop the plan to apply FRED23
for a brief interim period"

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