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Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) [Completed]

Effective date: Annual periods beginning on or after January 1, 2014.

Transitional provisions:

The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014.

Last updated:

July 2013

Overview

These narrow-scope amendments will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace their original counterparty with a new one.)

This relief has been introduced in response to legislative changes across many jurisdictions that would lead to the widespread novation of over-the-counter derivatives.  These legislative changes were prompted by a G20 commitment to improve transparency and regulatory oversight of over-the-counter derivatives in an internationally consistent and non-discriminatory way.  Similar relief will be included in IFRS 9, Financial Instruments.

Recent activities

June 2013

On June 27, 2013 the IASB issued Amendments to IAS 39, Financial Instruments: Recognition and Measurement: Novation of Derivatives and Continuation of Hedge Accounting.

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