The International Accounting Standards Board (IASB), the London-based accounting rule-maker, has issued the final version of its amendment limiting the use of the fair value option in IAS 39, the rule on measuring the value of financial assets and liabilities in the new International Financial Reporting Standards, or IFRS.
This means that European Unionâs Accounting Regulatory Committee (ARC) will be able to go ahead and approve the amendment at its July 8 meeting. ARC, which comprises officials from the EUâs 25 member states who make recommendations to the European Commission on IFRS matters, has already signalled its approval of the amendment in its draft form.
The amendment will come into effect in January 2006, although earlier application is encouraged by the IASB.
The modification brings to an end two years of wrangling initiated primarily by banking regulators who feared that the fair value option, which in its initial form allowed firms an unrestricted choice to value any financial instrument at current or market prices, could be abused by weak banks. The worry was that such banks might use the option to undervalue their liabilities, for instance, and thereby possibly threaten financial stability.