CFM21508 - Accounting for corporate finance: International Financial Reporting Standards: the scope of IAS 39
The scope of IAS 39
For those entities applying IFRS or FRS 101 with an accounting period beginning on or after 1 January 2018 refer to IFRS 9 for the recognition and measurement of financial instruments at CFM21800+
Who does IAS 39 apply to?
IAS 32 applies to all entities applying IFRS or FRS 101. IAS 32 also applied to entities applying FRS 25 under Old UK GAAP.
IAS 39 applied to all entities that prepared financial statements in accordance with IFRS with an accounting period beginning before 1 January 2018. The UK equivalent under Old UK GAAP, FRS 26, applied only to those entities under Old UK GAAP who:
- Were listed entities, or
- Applied the fair value option (for periods commencing on or after 1 January 2006), or
- Voluntarily adopted those standards (subject to the requirements of FRS 18).
Under New UK GAAP a company may continue to apply IAS 39 as a policy choice under FRS 102.
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 CFM 21140. 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.