ENCUESTA DIRIGIDA A LOS PRODUCTORES DEL RECINTO SAN AGUSTÍN

obligations regarding the manner of settlement depend on the outcome of uncertain future events or circumstances that are beyond the control of the issuer. Examples include contingencies such as market factors (changes in a stock market index or consumer price index) or factors specific to the issuer (such as revenue levels, total assets etc.). In these circumstances, a financial instrument should be classified as a liability, unless the possibility of cash settlement is remote at the time of issuance. If the possibility of cash settlement is remote, the contingent settlement provision should be ignored and the instrument should be classified as equity. All relevant features of a financial instrument nevertheless need to be considered when classifying the instrument in accordance with the substance of its contractual arrangements.

Summary

The following chart illustrates the decision process for determining whether an instrument should be classified as a liability or as equity:

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Is cash settlement either: • mandatory; or

• at the option of the holder?

Contractual obligation to pay either cash or own equity instruments

Does the settlement depend on the outcome of uncertain future events or circumstances beyond the issuer’s control?

Equity instrument Liability

Is the settlement in the issuer’s own equity shares, either mandatory or at the issuer’s option? Yes Yes No No Yes Yes No No No

Is the holder exposed to the risk of fluctuations in (a) price or (b) in residual interest in the issuer?

Is the possibility that the issuer will be required to settle in cash/other financial assets remote?

Yes

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IAS 39 was largely based on the equivalent US GAAP covering the same areas. As is usually the case in comparing IAS with US GAAP, the requirements of IAS 39 contain similar principles but far fewer detailed application rules than are found in US GAAP. In particular, the IAS 39 requirements on derivatives and hedging closely follow the principles, although not always the detail, in SFAS 133.

SFAS 133 is effective for accounting periods beginning on or after 15 June 2000. IAS 39 is effective for accounting periods commencing 1 January 2001. For calendar year reporting companies that report using both IAS and US GAAP, therefore, IAS 39 and SFAS 133 will need to be implemented at the same time. The FASB has established a Derivatives

Implementation Group (DIG) to identify issues and issue guidance on SFAS 133. It may ultimately issue up to 200 interpretations of the US standard, each of

which will be reviewed and endorsed by the FASB. The IASC is establishing a similar implementation group. Both standards are still being interpreted and practice is developing in this area. The differences in interpretation between IAS and US GAAP may well broaden in some areas and narrow in others, as the two standards are implemented.

The table overleaf sets out, at the broadest level, the similarities and differences in principles between the two groups of standards. The discussion following the table focuses on some of the detailed differences that may be significant in practice to those companies reporting under both IAS and US GAAP.

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Investments Depends on classification of

investment - if held-to-maturity then carry at amortised cost, otherwise at fair value. Gains/losses on trading securities go to income statement and on available-for-sale investments can go either to equity or income.

Comparable to IAS, except gains/losses on available-for-sale securities go to Other

Comprehensive Income.

Derecognition of financial assets

Recognise and derecognise assets based on control, following a components approach. Legal isolation is not a requirement for derecognition.

Comparable to IAS. Legal isolation of assets even in bankruptcy necessary for derecognition.

Derecognition of financial liabilities

Derecognise liabilities when extinguished.

Comparable to IAS.

Derivatives and other financial instruments – measurement of hedges of foreign entity investments

Gains/Losses on hedges of foreign entity investments recorded in equity and matched with translation differences on the underlying net investment.

Comparable to IAS.

Derivatives and hedging activities

Measure derivatives at fair value; take changes in fair value to income statement except for effective cash flow hedges where they are taken to equity until effect of transaction goes through income, then transferred to income statement. Deferred amount recognised in initial measurement of asset/liability for cash flow hedges of future transactions (basis adjustment).

Comparable to IAS, except no ‘basis adjustment’ on cash flow hedges of future transactions. Hedges of firm commitments are fair value hedges. Many differences in detail.

Subject

IAS

US GAAP

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Scope

There are some differences in the approach of the two standards, but the differences are also obscured by the use of the same terminology, but with different meanings (e.g. a cash flow hedge is not the same under the two standards).

The first notable difference between the International and the US approach is that most topics are addressed in only two IASs - IAS 32 and IAS 39. The US has many standards, besides SFAS 133, which deal with various aspects of financial instruments, such as: •SFAS 105: Disclosure of Information about

Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk.

•SFAS 107: Disclosures about Fair Value of Financial Instruments.

•SFAS 114: Accounting by Creditors for Impairment of a Loan.

•SFAS 115: Accounting for Certain Investments in Debt and Equity Securities.

•SFAS 118: Accounting by Creditors for Impairment of a Loan—Income Recognition and Disclosures. •SFAS 119: Disclosure about Derivative Financial

Instruments and Fair Value of Financial Instruments. •SFAS 125: Accounting for Transfers and

Servicing of Financial Assets and Extinguishments of Liabilities.

Unrecognised firm commitments