{
  "url": "https://openlegislation.uk/eu-regulation-2005-1864/introduction",
  "json_url": "https://openlegislation.uk/eu-regulation-2005-1864/introduction.json",
  "legislation": "eur/2005/1864",
  "legislation_title": "Commission Regulation (EC) No 1864/2005 of 15 November 2005 amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards International Financial Reporting Standard No 1 and International Accounting Standards Nos. 32 and 39 (Text with EEA relevance)",
  "legislation_url": "https://openlegislation.uk/eu-regulation-2005-1864",
  "path": "introduction",
  "kind": "introduction",
  "number": null,
  "heading": "Introductory text",
  "text": "Commission Regulation (EC) No 1864/2005\nof 15 November 2005\namending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards International Financial Reporting Standard No 1 and International Accounting Standards Nos. 32 and 39\n(Text with EEA relevance)\nTHE COMMISSION OF THE EUROPEAN COMMUNITIES,\nHaving regard to the Treaty establishing the European Community,\nHaving regard to Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards, and in particular Article 3(1) thereof,\nWhereas:\n(1)\nBy Commission Regulation (EC) No 1725/2003 of 29 September 2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council all international standards and interpretations that were extant at 14 September 2002 except International Accounting Standards (IAS) 32, IAS 39 and the related interpretations were adopted. In the cases of IAS 32 and IAS 39, the degree of amendment was considered so important that it was considered inappropriate to adopt the extant versions of these standards at that time.\n(2)\nOn 17 December 2003 the International Accounting Standard Board (IASB) published revised IAS 39 Financial Instruments: Recognition and Measurement as part of the IASB’s initiative to improve fifteen standards in time for them to be used by companies adopting IAS for the first time in 2005. The purpose of the revision was the further improvement of the quality and consistency of the body of existing IASs.\n(3)\nIAS 39 as revised in December 2003 introduced an option that permitted entities to designate irrevocably on initial recognition any financial asset or financial liability as one to be measured at fair value with gains and losses recognised in profit or loss (the full ‘Fair Value Option’). However, the European Central Bank (ECB), prudential supervisors represented in the Basel Committee as well as security regulators expressed concerns that an unrestricted fair value option might be used inappropriately, in particular for financial instruments relating to a company’s own liabilities.\n(4)\nThe IASB recognised these concerns and therefore published an Exposure Draft on 21 April 2004 proposing an amendment to IAS 39 in order to restrict the scope of the fair value option.\n(5)\nIn order to have substantive accounting guidance on financial instruments in time for application in 2005, the Commission endorsed IAS 39 with the exclusion of certain provisions relating to the full Fair Value Option and hedge accounting, by Commission Regulation (EC) No 2086/2004 of 19 November 2004 amending Regulation (EC) No 1725/2003 on the adoption of certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council as regards the insertion of IAS 39. The Commission considered this exclusion as exceptional and of a temporary nature pending resolution of the outstanding issues by further consultation and discussion.\n(6)\nIn the light of the comments received to the Exposure Draft published on 21 April 2004 and further discussions, in particular with the ECB and the Basle Committee, as well as a series of roundtables with interested parties in March 2005, the IASB published on 16 June 2005, Amendments to IAS 39 Financial Instruments: Recognition and Measurement, The Fair Value Option.\n(7)\nThe revised IAS 39 Fair Value Option restricts application to situations where this results in more relevant information, because it either eliminates or reduces significantly a measurement or recognition inconsistency (‘accounting mismatch’); or a group of financial assets or financial liabilities or both is managed in accordance with a documented risk management or investment strategy. In addition, the revised Fair Value Option permits an entire combined contract containing one or more embedded derivatives to be designated as a financial asset or financial liability at fair value through profit or loss in certain circumstances. Consequently, the application of the revised Fair Value Option is restricted to cases where certain principles or circumstances must be respected. Lastly, application should be supported by adequate disclosure.\n(8)\nTherefore, the provisions relating to the application of the fair value option to financial liabilities, which were excluded under Regulation (EC) No 2086/2004 should be inserted. Furthermore, the full fair value option with regard to financial assets as endorsed by Regulation (EC) No 2086/2004 should also be subject to a principles based approach.\n(9)\nThe IASB acknowledges that for the purposes of prudential supervision, the revised standard does not prevent prudential supervisors from evaluating the rigour of the fair value measurement practices of a regulated financial institution and the robustness of its underlying risk management strategies, policies and practices and from taking appropriate action. Furthermore, the IASB agrees that certain disclosures would assist prudential supervisors in their evaluation of capital requirements. This is particularly the case regarding the recognition of gains arising from deterioration in own credit standing which are to be further studied within the context of broader improvements to IAS 39. The Commission will therefore monitor the future effects of Amendments to IAS 39 Financial Instruments: Recognition and Measurement, The Fair Value Option and examine its application within the scope of the Review described at Article 10 of Regulation (EC) No 1606/2002.\n(10)\nThe adoption of amendments to IAS 39 implies, by way of consequence, amendments to International Financial Reporting Standard (IFRS) 1 and IAS 32 in order to ensure consistency between the accounting standards concerned.\n(11)\nIn the light of the new principles based approach to the fair value option and the need for first time adopters to provide more meaningful initial financial statements and comparative information, it is appropriate to provide for the retroactive application of this Regulation as from 1 January 2005.\n(12)\nThe consultation with technical experts in the field confirms that International Accounting Standard (IAS) Amendments to IAS 39 Financial Instruments: Recognition and Measurement, The Fair Value Option meets the technical criteria for adoption set out in Article 3 of Regulation (EC) No 1606/2002, and in particular the requirement of being conducive to the European public good.\n(13)\nRegulation (EC) No 1725/2003 should therefore be amended accordingly.\n(14)\nThe measures provided for in this Regulation are in accordance with the opinion of the Accounting Regulatory Committee,\nHAS ADOPTED THIS REGULATION:",
  "extent": "E+W+S+N.I.",
  "status": null,
  "version": "current",
  "annotations": [
    {
      "type": "footnote",
      "label": "f1",
      "text": "OJ L 243, 11.9.2002, p. 1."
    },
    {
      "type": "footnote",
      "label": "f2",
      "text": "OJ L 261, 13.10.2003, p. 1. Regulation as last amended by Regulation (EC) No 211/2005 (OJ L 41, 11.2.2005, p. 1)."
    },
    {
      "type": "footnote",
      "label": "f3",
      "text": "OJ L 363, 9.12.2004, p. 1."
    }
  ],
  "outstanding_effects": [],
  "provenance": {
    "source": "legislation.gov.uk",
    "source_url": "https://www.legislation.gov.uk/eur/2005/1864/introduction",
    "retrieved_at": "2026-11-01T14:54:09.006183+00:00"
  },
  "licence": "Open Government Licence v3.0",
  "licence_url": "https://www.nationalarchives.gov.uk/doc/open-government-licence/version/3/",
  "attribution": "Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives."
}