Case Study Of Accounting For Financial Assets And Financial Liabilities

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INTRODUCTION
Accounting for derivatives has always created debates and arguments among public accountants concerning measurement bases for derivatives used in hedging activities, disclosure matters and related gains and losses (Benston, 1997). The aim to control risk in financial markets has led to various accounting standards addressing financial instruments and derivatives used in most industries. The need to shift from the historical cost base to fair value accounting has been the main target of international accounting standard setters in the context of financial instrument accounting (Lopes & Rodrigues, 2004).

BACKGROUND OF IAS 39
In 1989, The International Accounting Standard Committee (IASC) and The Canadian Institute of Chartered Accountants (CICA) established a joint arrangement to develop broad standards to address disclosure, measurement and recognition of financial instruments. IASC distributed E40, Financial instrument (an exposure draft) for comments in September 1991 which was later re-opened in January 1994 as E48, Financial instruments. As a result of several debates, bodies separated the project into two parts: the presentation and disclosure of financial instruments and the accounting for financial instruments including hedge accounting as the other part; in June 1995, a part resulted to IAS 32 Financial Instruments: Disclosure and Presentation. The second part was improved to a discussion paper “Accounting for Financial Assets and Financial Liabilities” in March 1997 addressing matters on recognition, de-recognition, measurement and hedge accounting of financial instruments. E62, Financial instrument: Recognition and Measurement, was issued by IASC in June 1998, led to IAS 39 in December 1998, as...

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...incurred, development costs are capitalised. Noncurrent liabilities are recorded based on amortized cost. Difference between historical cost and repayment value are amortized using effective interest method. Reason for conceptual framework is harmonization, without conceptual framework there will be no meaning to the financial statement.
Recently, US GAAP and IFRS have come to an agreement that US government might adopt IFRS around year 2015; some of international companies operating US will apply both US GAAP and IFRS and if the results are satisfactory by them, the US government will adopt US GAAP. As at April 2014, there are going discussions based on IASB conceptual on some aspects of the conceptual framework such as its definition of assets and liabilities, revision of some objectives and distinction between profit, loss and comprehensive income

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