Identification of exposures qualifying for hedge accounting

The Board discussed a first pre-ballot draft of a proposed amendment to IAS 39. (The pre-ballot draft was omitted from the observer notes.)

The proposed amendments specify:

• the risks that qualify for designation as hedged risks when an entity hedges its exposure to a financial asset or financial liability
• when an entity may designate a portion of the cash flows of a financial instrument as a hedged item.

With regard to the first issue it appeared from the discussion that the following risks will be specified in the amendment:

• Market interest rate risk
• Foreign currency risk
• Credit risk
• Prepayment risk
• The risks associated with the cash flows of a financial instrument that are contractually specified and are independent from the other cash flows of the same financial instrument.

With regard to the second issue the amendment appears to identify the following "other portions" as eligible for designation:

• The risk-free or LIBOR portion of an interest bearing financial instrument;
• The prepayment portion of an interest bearing financial instrument;
• The remaining portion of an interest bearing financial instrument once the interest rate or prepayment risk portion has been excluded (labelled as a 'credit portion').

The Board clarified that, while it was moving in the direction of the FASB, it was not going for full convergence, as the

IASB proposals provide more restrictions on hedged portions.

No Board member indicated to dissent from issuing the current version of the pre-ballot draft.