49. When loans and advances cannot be recovered, they are written off and charged against any allowance account for impairment losses. In some cases, they are not written off until all the necessary legal procedures have been completed and the amount of the impairment loss is finally determined. In other cases, they are written off earlier, for example when the borrower has not paid any interest or repaid any principal that was due in a specified period. As the time at which uncollectible loans and advances are written off differs, the gross amount of loans and advances and of the allowance account for impairment losses may vary considerably in similar circumstances. As a result, a bank discloses its policy for writing off uncollectibleloans and advances.
In paragraph 58, subparagraph (c) is amended to read as follows:
(c) the amount of the expense recognised in the period for impairment losses on loans and advances and the amount of any allowance account at the balance sheet date; and

Amendments to IAS 36
B6. IAS 36 Impairment of Assets is amended as described below:
Standard
Paragraph 1 is amended to read as follows:
1. This Standard shall be applied in accounting for the impairment of all assets, other than:
...
(e) financial assets that are included in the scope of IAS 39Financial Instruments: Recognition and Measurement;
Basis for Conclusions
In IASC's Basis for Conclusions on IAS 36, paragraphs B18, B26(d) and B32 should be read as follows:
[The original text has been marked up to reflect the revision of IAS 39 in 2003; new text is underlined and deleted text is struck through.]
B18. The IASC Financial Instruments project is underway. Impairment requirements for financial instruments will be dealt with in that project. IAS 39, Financial Instruments: Recognition and Measurement, sets out the requirements for impairment of financial assets.

B26. (d) IAS 3239* indicates that if an active market exists, the fair value of a financial instrument is based on a quoted market price. ...
* The IASB's project to revise IAS 32 and IAS 39 in 2003 resulted in the relocation of the requirements on fair value measurement from IAS 32 to IAS 39.
B32. Although the Board decided to reject fair value for measuring the recoverable amount of the assets covered by IAS 36, the Board has not yet concluded whether fair value is an appropriate basis to measure the recoverable amount of other assets, such as financial assets for which an active market exists.*
* IAS 39 Financial Instruments: Recognition and Measurement requires fair value measurement of certain financial assets. This paragraph has been struck through to avoid any confusion.

Amendments to IAS 37
B7. IAS 37 Provisions, Contingent Liabilities and Contingent Assets is amended as described below.
Paragraphs 1 and 2 are amended to read as follows:
1. This Standard shall be applied by all entities in accounting for provisions, contingent liabilities and contingent assets, except:
(a) those resulting from executory contracts, except where the contract is onerous;
(b) those arising in insurance entities from contracts with policyholders; and
(c) those covered by another Standard.
2. This Standard does not apply to financial instruments (including guarantees) that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement. For financial guarantees excluded from the scope of IAS 39, this Standard applies as set out in paragraph 2(f) of IAS 39.
Example 9 is amended to read as follows:
Example 9: A Single Guarantee
On 31 December 1999, Entity A gives a guarantee of certain borrowings of Entity B, whose financial condition at that time is sound. During 2000, the financial condition of Entity B deteriorates and at 30 June 2000 Entity B files for protection from its creditors.
(a) At 31 December 1999
Present obligation as a result of a past obligating event - The obligating event is the giving of the guarantee, which gives rise to a legal obligation.
An outflow of resources embodying economic benefits in settlement - No outflow of benefits is probable at 31 December 1999.
Conclusion - The guarantee is recognised at fair value (see paragraph 2(f) of IAS 39).

(b) At 31 December 2000
Present obligation as a result of a past obligating event - The obligating event is the giving of the guarantee, which gives rise to a legal obligation.
An outflow of resources embodying economic benefits in settlement - At 31 December 2000, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
Conclusion - The guarantee is subsequently measured at the higher of (a) the best estimate of the obligation (see paragraphs 14 and 23), and (b) the amount initially recognised less, when appropriate, cumulative amortisation in accordance with IAS 18 Revenue.
Note: Where an entity gives guarantees in exchange for a fee, revenue is recognised under IAS 18 Revenue.

(b) At 31 December 2000
Present obligation as a result of a past obligating event - The obligating event is the giving of the guarantee, which gives rise to a legal obligation.
An outflow of resources embodying economic benefits in settlement - At 31 December 2000, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
Conclusion - The guarantee is subsequently measured at the higher of (a) the best estimate of the obligation (see paragraphs 14 and 23), and (b) the amount initially recognised less, when appropriate, cumulative amortisation in accordance with IAS 18 Revenue.
Note: Where an entity gives guarantees in exchange for a fee, revenue is recognised under IAS 18 Revenue.

Editorial note: Paragraph B8 inserted by IAS Corrections List 9, May 2004

Basis for Conclusions
This Basis for Conclusions accompanies, but is not part of, IAS 39.
BC1. This Basis for Conclusions summarises the International Accounting Standards Board's considerations in reaching the conclusions on revising IAS 39 Financial Instruments: Recognition and Measurement in 2003. Individual Board members gave greater weight to some factors than to others.
BC2. In July 2001, the Board announced that, as part of its initial agenda of technical projects, it would undertake a project to improve a number of Standards, including IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement. The objectives of the Improvements project were to reduce the complexity in the Standards by clarifying and adding guidance, eliminating internal inconsistencies and incorporating into the Standards elements of Standing Interpretations Committee (SIC) Interpretations and IAS 39 implementation guidance. In June 2002 the Board published its proposals in an Exposure Draft of Proposed Amendments to IAS 32 Financial Instruments: Disclosure and Presentation and IAS 39 Financial Instruments: Recognition and Measurement, with a comment deadline of 14 October 2002. In August 2003 the Board published a further Exposure Draft of Proposed Amendments to IAS 39 on Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk, with a comment deadline of 14 November 2003.
Editorial note: Last sentence inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
BC3. Because the Board's intention was not to reconsider the fundamental approach to the accounting for financial instruments established by IAS 32 and IAS 39, this Basis for Conclusions does not discuss requirements in IAS 39 that the Board has not reconsidered.

Background
BC4. The original version of IAS 39 became effective for financial statements covering financial years beginning on or after 1 January 2001. It reflected a mixed measurement model in which some financial assets and financial liabilities are measured at fair value and others at cost or amortised cost, depending in part on an entity's intention in holding an instrument.
BC5. The Board recognises that accounting for financial instruments is a difficult and controversial subject. The Board's predecessor body, the International Accounting Standards Committee (IASC) began its work on the issue some 15 years ago, in 1988. During the next eight years it published two Exposure Drafts, culminating in the issue of IAS 32 on disclosure and presentation in 1995. IASC decided that its initial proposals on recognition and measurement should not be progressed to a Standard, in view of:
•   the critical response they had attracted;
•   evolving practices in financial instruments; and
•   the developing thinking by national standard-setters.
BC6. Accordingly, in 1997 IASC published, jointly with the Canadian Accounting Standards Board, a discussion paper that proposed a different approach, namely that all financial assets and financial liabilities should be measured at fair value. The responses to that paper indicated both widespread unease with some of its proposals and that more work needed to be done before a standard requiring a full fair value approach could be contemplated.
BC7. In the meantime, IASC concluded that a standard on the recognition and measurement of financial instruments was needed urgently. It noted that although financial instruments were widely held and used throughout the world, few countries apart from the United States had any recognition and measurement standards for them. In addition, IASC had agreed with the International Organization of Securities Commissions (IOSCO) that it would develop a set of 'core' International Accounting Standards that could be endorsed by IOSCO for the purpose of cross-border capital raising and listing in all global markets. Those core standards included one on the recognition and measurement of financial instruments. Accordingly, IASC developed the version of IAS 39 that was issued in 2000.
BC8. In December 2000 a Financial Instruments Joint Working Group of Standard Setters (JWG), comprising representatives or members of accounting standard-setters and professional organisations from a range of countries, published a Draft Standard and Basis for Conclusions entitled Financial Instruments and Similar Items. That Draft Standard proposed far-reaching changes to accounting for financial instruments and similar items, including the measurement of virtually all financial instruments at fair value. In the light of feedback on the JWG's proposals, it is evident that much more work is needed before a comprehensive fair value accounting model could be introduced.

BC9. In July 2001 the Board announced that it would undertake a project to improve the existing requirements on the accounting for financial instruments in IAS 32 and IAS 39. The improvements deal with practice issues identified by audit firms, national standard-setters, regulators and others, and issues identified in the IAS 39 implementation guidance process or by IASB staff.
BC10. In June 2002 the Board published an Exposure Draft of proposed amendments to IAS 32 and IAS 39 for a 116-day comment period. More than 170 comment letters were received.
BC11. Subsequently, the Board took steps to enable constituents to inform it better about the main issues arising out of the comment process, and to enable the Board to explain its views of the issues and its tentative conclusions. These consultations included:
(a) discussions with the Standards Advisory Council on the main issues raised in the comment process.
(b) nine roundtable discussions with constituents during March 2003 conducted in Brussels and London. Over 100 organisations and individuals took part in those discussions.
(c) discussions with the Board's liaison standard-setters of the issues raised in the roundtable discussions.
(d) meetings between members of the Board and its staff and various groups of constituents to explore further issues raised in comment letters and at the roundtable discussions.

BC11A. Some of the comment letters on the June 2002 Exposure Draft and participants in the roundtables raised a significant issue for which the June 2003 Exposure Draft had not proposed any changes. This was hedge accounting for a portfolio hedge of interest rate risk (sometimes referred to as 'macro hedging') and the related question of the treatment in hedge accounting of deposits with a demand feature (sometimes referred to as 'demand deposits' or 'demandable liabilities'). In particular, some were concerned that it was very difficult to achieve fair value hedge accounting for a macro hedge in accordance with previous versions of IAS 39.
Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.
BC11B. In the light of these concerns, the Board decided to explore whether and how IAS 39 might be amended to enable fair value hedge accounting to be used more readily for a portfolio hedge of interest rate risk. This resulted in a further Exposure Draft of Proposed Amendments to IAS 39 that was published in August 2003 and on which more than 120 comment letters were received. The amendments proposed in the Exposure Draft were finalised in March 2004.
Editorial note: Inserted by Amendments to IAS 39, March 2004 with effect for annual periods beginning on or after 1 January 2005. An entity shall apply the amendments to an earlier period when it applies IAS 39 (as revised in 2003) and IAS 32 (as revised in 2003) to that period.

Prospective amendment: Amendments to IAS 39 Financial Instruments: Recognition and Measurement - The Fair Value Option (June 2005) inserts new paragraph BC11C with effect for annual periods beginning on or after 1 January 2006.
BC12. The Board did not reconsider the fundamental approach to accounting for financial instruments contained in IAS 39. Some of the complexity in existing requirements is inevitable in a mixed measurement model based in part on management's intentions for holding financial instruments and given the complexity of finance concepts and fair value estimation issues. The amendments reduce some of the complexity by clarifying the Standard, eliminating internal inconsistencies and incorporating additional guidance into the Standard.
BC13. The amendments also eliminate or mitigate some differences between IAS 39 and US GAAP related to the measurement of financial instruments. Already, the measurement requirements in IAS 39 are, to a large extent, similar to equivalent requirements in US GAAP, in particular, those in FASB SFAS 114 Accounting by Creditors for Impairment of a Loan, SFAS 115 Accounting for Certain Investments in Debt and Equity Securities and SFAS 133 Accounting for Derivative Instruments and Hedging Activities.
BC14. The Board will continue its consideration of issues related to the accounting for financial instruments. However, it expects that the basic principles in the improved IAS 39 will be in place for a considerable period.