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The Actuary The magazine of the Institute & Faculty of Actuaries

IAS 39 stirs controversy

The US and ‘old Europe’ appeared to be locking horns again as proposals to implement international accounting standards became mired in controversy in recent weeks. On a closer look, the governments of France, Italy, Spain, Belgium, and Slovenia were being supported by most of the larger European banks and insurers in withholding endorsement of the application of IAS39.

This standard, equivalent to US FAS133, effectively requires most assets and certain liabilities to be measured at market value.

Resisting banks were arguing that technical factors associated with the new standard would damage confidence by introducing substantial volatility into balance sheets and movements in equity.

As we went to press it seemed likely that the European Commission would endorse IAS39 only in part, although FSA chief John Tiner and accounting commentators argued that this would be worse than postponing implementation of ‘international’ accounting standards. IFRS4 for insurance accounting effectively classifies much of life insurer balance sheets as being of financial instruments to which IAS39 applies, so the current uncertainty risks creating real implementation challenges for actuaries and their accounting colleagues.