Center for Global Business and the Economy

The IAS 39 "Carve-Out": How the European Union hedged its exposure to the international standard on derivatives and hedging

International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, has attracted considerable controversy throughout its development. Despite efforts to accommodate concerns of major European financial institutions and political agencies, the International Accounting Standards Board refused to fully concede to lobby pressure, and implemented a compromise standard in March 2004. This case explores the history of IAS 39, describes the IAS 39 proscribed accounting treatment for fair value and cash flow hedges, outlines heavily debated issues surrounding macro hedge accounting, and illustrates the impact of politics in the accounting standard setting process.