Sample Essay

The AASB IAS-139 was simultaneously issued with AASB 132 and requires that the financial instruments of the company be classified into categories which are financial instruments at fair value through profit and loss, held to maturity investments, available for sale financial assets and loans or receivables. Financial instruments like derivatives were not recognized on the balance sheet before IAS 139 but now they have to be recognized at fair value. The fair value is defined by the standard as the value at which two parties agree to exchange an asset or settle a liability (Australian Accounting Standards Board 2008).

The standard attempts to fill the gap in the current accounting practices for recognition and measurement of financial instruments. The standard sets a guideline for the measurement and classification of different financial instruments such as loans or receivables, assets held to maturity, assets held for trading, assets available for sale and non-trading liabilities. The banking sector of Australia had quite a few problems concerning the implementation of IAS 139. The two main challenges for banks were the valuation of assets in very liquid markets and the valuation of fair value through profit and loss especially in cases of hedging (Andrew 2006)

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