For many publicly traded companies, the financial crisis of the past fifteen months is one of the key events of 2008. It is likely to have a major impact on financial statements, not just for financial institutions but also for industrial and commercial firms. It raises particularly important issues regarding the fair value measurement of certain instruments (IAS 39 – Financial Instruments: recognition and measurement), valuations (IAS 36 – Impairment of Assets, IAS 19 – Employee Benefits), the classification of financial debts that include covenants, and the impairment of tangible and intangible assets.
Since the beginning of 2008, a number of initiatives have been taken by governments (through the G7 and ECOFIN) and regulators to deal with the financial crisis. In April, the Financial Stability Forum (FSF) published a report containing 67 recommendations, including three calling for action on the part of the international accounting standards setter; and the G7 issued a statement calling for greater transparency in financial statements starting with the 2008 mid-year reporting cycle. These proposals are aimed at measuring fair value in illiquid markets, improving the rules for consolidating special-purpose entities, and improving public disclosures concerning financial instruments. These proposals led the IASB to form an Expert Advisory Panel, charged with rapidly formulating proposals to address the problems of valuation and related disclosures. Regulators have contributed to the work, taking part in the IASB initiatives and offering their analysis of the issues (see IOSCO’s report on market turmoil1 and CESR’s statement on fair value measurement and related disclosures of financial instruments in illiquid markets2).
As the publication of year-end financial statements approaches, the AMF wishes to stress one of its previous recommendations that still appears timely. This is the recommendation concerning disclosures on capital (IAS 1), and in particular on the distinction between the liability and equity components of instruments, external restrictions affecting capital, the presentation of material estimates, and adapting the description of accounting methods to the specific characteristics of the issuer’s business. In addition, the AMF published recommendations on 7 October 2008 concerning leveraged company investment funds that includes a section on the periodic disclosures to be provided by issuers.
Finally, in view of regular complaints about the excessive length of financial statement notes, the AMF urges issuers, once again this year, to focus on the relevance of disclosures rather than their volume. As it did in 2007, the AMF reminds issuers that, in accordance with the concept of materiality referred to in IAS 1.29-313, specific disclosure provisions need not apply to information that is not material.
Having made these reminders, we present below our recommendations for the preparation of 2008 financial statements. The principal themes are:- the consequences of the financial crisis (both for financial instruments and for the valuation of other significant balance sheet items)
- structural transactions (consolidations, acquisitions, and de-consolidations)
- new standards and interpretations.
Click here for full details.
1The final report, “Report on the subprime crisis”, published on 29 May 2008, is available at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD273.pdf
2Report published on 3 October 2008, available at http://www.cesr.eu/popup2.php?id=5285
