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International treasury associations concerned over accounting regulation Back  
Members of the IGTA say the accounting of financial instruments should be clear and simple
The International Group of Treasury Associations (IGTA) held its annual meeting in May. The main topic of discussion was the developments in the accounting of financial instruments. Concern has grown among treasury professionals over the approach of accounting regulators to the accounting of financial instruments. At the meeting, the IGTA outlined the principles it felt should be held paramount in any accounting framework

• Accounting rules should be clear, simple and straight-forward to apply

• The result of applying the rules should be that financial instruments entered into by a company, and combinations of financial instruments with the same economic outcome, should be accounted similarly (For example a company’s fixed rate debt, and an identical debt achieved by borrowing at a floating rate and adding a swap, should be accounted in a way which ensures that the two alternative routes to the same economic outcome have identical impacts on the balance sheet and performance statements of the company.)

• Accounting standards setters should ensure that disclosure on the use of financial instruments is mandatory, clear, aggregated across all instruments and sufficiently detailed. The user of accounts should understand the use to which all financial instruments have been directed, their past, present and future impact on the performance statement and balance sheet of the company, and the economic outcome expected for each financial instrument at its maturity.

The IGTA believes that the disclosure of the nature of financial instruments and their use is paramount, and more valuable to readers of accounts than tbe methodology of accounting used. But of more importance, is the possibility that the accounting requirements being adopted presently by some accounting regulators would cause a company to change its behaviour. This could lead to changes in the resulting economic outturn and could be done in order to meet, or avoid, the requirements of over complex accounting rules.

IGTA members were especially concerned with the accounting standard FAS 133. They feel FAS 133 has eroded the basis on which treasurers may make prudent decisions in the management of financial risk within their companies. this is because of over prescriptive detail within the standard and a failure to adopt a consistent approach for all financial instruments within the standard.

The IGTA was formed in 1996 by a group of 9 treasury associations and is now comprised of 20 members including, Australia, Morocco, India, Canada, South Africa, USA and several European associations. It’s main objective is to encourage best practice for all involved in treasury procedures and to raise the profile of the treasury profession. Jimmy Doyle, treasury manager with Bank of Scotland was the Irish delegate at the meeting.

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