Intended to apply to all entities and all financial instruments, from derivatives to debt, the proposed standard is based on fair-value measurement where a financial asset (or liability) is measured at its current market value as opposed to its historical cost, the Canadian Institute of Chartered Accountants said.

"The importance of having a global standard for financial instruments can not be overemphasized," said Tricia O'Malley, chair of Canada's Accounting Standards Board (AcSB). "This is a clear case of needing global standards for a global marketplace -- and when it comes to financial instruments, such as bonds, derivatives and stocks, the market truly is a global market. Canada must move with global change."

The Financial Instruments Joint Working Group of standard-setters (JWG), which comprises representatives from the AcSB, the U.S. Financial Accounting Standards Board, the International Accounting Standards Committee, Australia, France, Germany, Japan, New Zealand, five Nordic countries and the United Kingdom, was established to develop a proposed comprehensive standard on accounting for financial instruments based on fair-value measurement principles.

"Adoption of the proposals would result in significant change to accounting standards in Canada," O'Malley said. "Moving to a fair-value accounting model would require measurement of all financial instruments at fair-value with gains and losses arising from changes in fair-value recorded in the income statement. This represents a dramatic change to the way we account for financial instruments."

According to CICA, a new standard based on the proposals would provide a clearer picture of an entity's financial situation and value and risk management practices, and would improve the accountability of management, reduce opportunities to manage earnings, and enhance disclosure.

Canada doesn't currently have adequate accounting standards for recognition and measurement of financial instruments.

The AcSB establishes financial accounting and reporting standards for use by Canadian companies and not-for-profit organizations. It also participates in the development of internationally accepted accounting standards.

CICA, together with the provincial and territorial institutes of chartered accountants, represents a membership of more than 66,000 professional accountants and 8,500 students in Canada and Bermuda.

-- SmartPros News Staff

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