FRS 139

The most complexed FRS is finally here! First an entity needs to understand what is the meaning of financial instrument under FRS 139 and then to identify its financial assets and liabilities. Thereafter to measure them. An entity's financial assets would be categorised into 'fair value through profit or loss', 'held-to-maturity', 'loans and receivables' and 'available-for-sale' while financial liabilities are classified into two categories. Also, for the first time, derivatives are to be reflected in the balance sheet which hitherto are known as 'off-balance sheet' items.

Treatment resulting on decline or rise in the value of financial assets and liabilities would be very much dependent on the above categorisation. It can be either recorded in the profit and loss statement, reserves or equity.

Is FRS 139 adopting principles-based or rules-based accounting? The answer is it is a mixture of both. 'Rights and obligations' approach heavily outweights 'substance over form'.

Although there are detailed rules in identifying and classifying financial instrument assets and liabilities, flexibilty is allowed to choose which category certain financial assets fall into. This flexibility will undermine comparability, especially financial interpretation by ratio analysis.

My opinion is that this Standard is very much the work of regulators who had learned from the weaknesses in financial reporting as glaringly evident during the recent global financial crisis.

Continuing education and training is the key successful application of FRS 139.