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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: International Accounting Standards: the scope of IAS 32 and IAS 39

The scope of IAS 32/IAS 39

Who does IAS 32/IAS 39 apply to?

IAS 32 (and FRS 25, apart from the disclosure elements of that standard applicable for periods commencing prior to 1 January 2007) apply to all entities that prepare financial statements, although in the UK, companies that follow the FRSSE (Financial Reporting Standard for Smaller Entities) are exempt from these requirements.

IAS 39 and IFRS 7 apply to all entities that prepare financial statements in accordance with IFRS. Their UK equivalents, FRS 26 and FRS 29 (from 1 January 2007), as well as the associated standards FRS 23 and FRS 24, apply only to those entities applying UK GAAP who:

  • Are listed entities, or
  • Apply the fair value option (for periods commencing on or after 1 January 2006), or
  • Voluntarily adopt those standards (subject to the requirements of FRS 18).

Note that, in this guidance, the word ‘company’ is often used rather than the more general term ‘entity’, as it is primarily concerned with companies within the charge to corporation tax.

What do they apply to?

IAS 32 and IAS 39 apply to all financial instruments, with some exceptions that are summarised at CFM21140. In particular, IAS 39 does apply to contracts for such items that can be settled net in cash or another financial instrument, except those that were entered into and continue to be held for the purpose of the receipt or delivery of a non-financial item in accordance with the company’s expected purchase, sale or usage requirements.

What don’t they apply to?

Non-financial assets and non-financial liabilities are outside the scope. These include physical assets such as stock-in-trade; property, plant and equipment; leased assets; intangibles, such as patents and trademarks; prepayments for goods or services; non-contractual liabilities such as taxes; and minority interests. Commodities, such as gold bullion, are also outside the scope.

If, however, a company grants an option giving someone else the power to buy or sell a non-financial asset, with an alternative for cash settlement, the company has no say over whether it delivers, or takes delivery of, the asset - that will be up to the option holder. The company therefore cannot claim that it wrote the option for the purpose of receipt or delivery of the asset, and such an option will thus always be within the scope of IAS 39.