The Investment Dealers Association of Canada has issued a notice that aims to provide guidance concerning the application of new accounting standards for financial instruments.

The new accounting standards will require that every firm identify all financial instruments in its organization to ensure the terms and conditions of both financial and non-financial contracts are understood and properly classified and documented into one of five categories in its internal accounting policies. This includes the method of measurement and income recognition.

The IDA notes that these standards are a culmination of consultation by the Accounting Standards Board with Canadian constituents and with international standard setters. “Having explored several approaches to accounting for financial instruments, the AcSB has produced standards that are intended to enhance the clarity and practicality of financial statements, and harmonize them with international standards,” it says.

“The AcSB has standards in place for disclosures about an entity’s use of financial instruments and for presentation of financial instruments when included in the balance sheet. However, until now it has not had standards that comprehensively address when an entity should recognize a financial instrument on its balance sheet, or how it should measure the financial instrument once recognized,” the notice adds.

The IDA says that it has determined after detailed analysis of the new accounting standards that current regulatory accounting requirements are materially in compliance with the alternatives available for securities dealers under the new accounting standards. Material compliance with the new accounting standards requires that all members identify, classify and document the method of income measurement for all financial instruments in their internal accounting policies and procedures.