16.11.2005 Official Journal of the European Union L 299/45 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) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having 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 (1), and in particular Article 3(1) thereof, Whereas: By 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 interpre- tations 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 inap- propriate to adopt the extant versions of these standards at that time. On 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. IAS 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 () O] L 243, 11.9.2002, p. 1. () OJ L 261, 13.10.2003, p. 1. Regulation as last amended by Regu- lation (EC) No 2112005 (O] L 41, 11.2.2005, p. 1). concerns that an unrestricted fair value option might be used inappropriately, in particular for financial instruments relating to a company’s own liabilities. The 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. In 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 Regu- lation (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 T1AS 39 (). The Commission considered this exclusion as exceptional and of a temporary nature pending reso- lution of the outstanding issues by further consultation and discussion. In 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. The revised IAS 39 Fair Value Option restricts application to situations where this results in more relevant infor- mation, because it either eliminates or reduces signifi- cantly 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. () O] L 363, 9.12.2004, p. 1.