IFRS in National Regulatory Space: Insights from Sweden

Figures & data

Table 1. Swedish regulatory space for the financial sector.

	Consolidated financial statements, listed firms	Consolidated financial statements, unlisted firms; Legal entities, both listed and unlisted
Laws regulating accounting	EU IAS/IFRS Regulation (1606/2002/EC)	Swedish financial reporting act, ÅRL
Accounting standards followed	IFRS, issued by the IASB and endorsed by the EU	Ordinances (FFFS) issued by FI that closely follow IFRS, with some exceptions based on ÅRL and Swedish tax regulation^a
Enforcement of accounting regulation	Stock exchanges, under authority delegated from FI^b	FI (which also carries out financial supervision in banking and insurance)

^aThere are no exceptions pertaining to financial instruments and insurance contracts.

^bAs of 2019, enforcement is carried out by the Securities Council.

Figure 1. Overview of events in the HQ case.

Table 2. Actors’ responses to issues that require judgment in the measurement of index options in IAS 39.

	Use of market quotes	Use of valuation model (e.g. Black-Scholes)
Actors	Is there enough market activity to allow use of market quotes for identical instruments? [A]	Is there enough market activity in similar instruments to use implied volatility? [B]	Can historical volatility be used, with possible adjustment for estimated market expectations? [C]
HQ	No	No	Yes
FI	Yes	Not relevant question, since market quotes for identical instruments should be used	Not relevant question, since market quotes for identical instruments should be used
SDC, criminal case	No	No	Yes
SDC, civil case	No	Yes	Not relevant question, since implied volatility in similar instruments should be used

Note that the responses by the actors reflect the most material instruments. For example, HQ used markets quotes for identical instruments for some instruments. Also, in the civil case, SDC applied implied volatility to a material selection of instruments. A general principle in IAS 39 is that observable market data is preferable to preparer estimates. Therefore, if useful market quotes for identical instruments (column [A]) are available, a valuation model cannot be applied. Further, if implied volatility is available (column [B]), estimates (column [C]) cannot be used. In all situations, market data is subject to an activity threshold. In other words, the judgement of the different actors differed in relation to the perceived market activity in relation to the most material instruments – or similar instruments – in HQ's portfolio.