New accounting standard will see firms book the instruments at market value
Hong Kong companies holding derivatives will find their profit-loss accounts more volatile after the implementation of a new accounting rule in January next year.
The accounting standard known as HKAS39, was announced last week by the Hong Kong Society of Accountants. It will require companies to book derivatives at market value, instead of valuing them at the original cost.
Lloyd Bryce, partner of financial services of PricewaterhouseCoopers, said the change would enhance transparency by allowing investors to understand the real value of the derivatives held by listed firms. But critics say the rule will result in intolerable profit-loss swings that do not reflect the health of a company.
The rule is based on international accounting standard IAS39, which has been the focus of heated debate in Europe. The European Commission may delay or reject implementation of the rule, also scheduled for next year, after intense lobbying by banks.
A meeting between the International Accounting Standards Board and the European Banking Federation is scheduled for Wednesday. The board has refused to consider modifying IAS39, saying it 'is not intended to create volatility, but only to unmask volatility of [derivatives]'.
Hong Kong companies have been more concerned about another rule, IAS40, which requires companies to book their property holdings by market value. The society suspended a consultation process before implementing the rule two years ago, but will address the issue again soon.
