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IAS39 Treasury Data

This Standard establishes principles for recognising and measuring financial assets, financial liabilities and some contract to buy or sell non-financial items.

This Standard:

  • applies to all types of financial instruments unless they are specifically excluded;
  • classifies financial assets into four categories and prescribes the accounting treatment under each category;
  • requires an embedded derivative to be separated from the host contract and accounted for as a derivative if, but only if, it has characteristics that are not closely related to those of its hosts
  • requires all derivative financial instruments to be reported on the balance sheet and measured at fair value, unless the derivative is designated as a hedge and meets the hedging criteria in the Standard;
  • provides extensive guidance on the de recognition of financial assets and financial liabilities;
  • outlines the circumstances under which financial instruments may be reclassified;
  • requires the entity to assess at each balance date whether there is any objective evidence that a financial asset or group of financial assets is impaired; and
  • designates three types of hedges and prescribes the accounting treatment for each type of hedge.

In adopting IAS 39 for application as NZ IAS 39 no changes have been made to the requirements of IAS 39.

Entities that comply with NZ IAS 39 will simultaneously be in compliance with IAS 39.

IAS 39 Financial Data: quoted price

A financial instrument is regarded as a quote in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those processes represent actual and regularly occurring market transactions on an arm’s length basis. Fair value is defined in terms of a price agreed by a willing buyer and a willing seller in an arm’s length transaction. The objective of determining fair value for a financial instrument that is traded in an active market is to arrive at the price at which the transaction would occur at the balance sheet date in that instrument (ie without modifying or repackaging the instrument) in the most advantageous active market to which the entry has immediate access. However, the entity adjusts the price in the more advantageous market to reflect any differences in the counterparty credit risk between instruments traded in that market and the one being valued. The existence of published price quotations in an active market is the best evidence of fair value and when they exist they are used to measure the financial asset or financial liability.

The appropriate quoted market price for an asset held or liability to be issued is usually the current bid price and, for an asset to be acquired or liability held, the asking price. When an entity has assets and liabilities with offsetting market risks it may use the mid-market price as a basis for establishing fair values for the offsetting risk positions and apply the bid or asking price to the net open position as appropriate. When current bid and asking prices are unavailable, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. If conditions have changed since the time of the transaction (eg a change in the risk-free interest rate following the most recent price quote for a corporate bond), the fair value reflects the change in conditions by the reference to current prices or rates for similar financial instruments, as appropriate. Similarly, if the entity can demonstrate that the last transaction price is not a fair value that price is adjusted. The fair value portfolio of financial instruments is the product of the number of units of the instruments and its quoted market price. If a published price quotation is an active market does not exist for a financial instrument in its entity, but active markets exist for its counterparts, fair value is determined on the basis of the relevant market prices of the component parts.

If a rate (rather than a price) is quoted in an active market, the entity uses that market-quoted rate as an input into a valuation technique to determine fair value. If the market-quote does not include credit risk or other factors that market participants would include in valuing the instrument, the entity adjusts for those factors.

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