EFRAG and the staff of the IASB disagree on macro hedge accounting

  • EFRAG (European Financial Reporting Advisory Group) (dk green) Image

22 Jan, 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the impact of the Review Draft (RD) 'IFRS 9 General hedge accounting' on existing macro hedge relationships under IAS 39, which was published by the IASB in September 2012. EFRAG's position regarding macro hedge accounting is opposed to the position the IASB staff has taken in an agenda paper for the IASB meeting next week.

The EFRAG draft comment letter notes that in its field test of the RD, many participants reported that it was unclear whether the requirements would change the way they deal with macro hedge relationships.

EFRAG supports the IASB's goal of of maintaining the status quo of macro hedge accounting, and believes that the IASB decision to make the general hedge accounting requirements effective before it completes its work on macro hedging of open portfolios should not result in piecemeal changes to current macro hedge accounting practices.

However, as EFRAG explains, "the revised wording of paragraph 71 of IAS 39 does not allow the IASB to achieve the goal of maintaining the status quo of macro hedge accounting" as the requirements of the RD would apply to cash flow hedges of open and closed portfolios and only fair value hedges of the interest rate exposures would continue to fall under the requirements of IAS 39. Therefore, EFRAG recommends changing the wording of paragraph 71 of IAS 39 to allow current hedge accounting requirements for open portfolios to be maintained under what remains of IAS 39.

In an agenda paper prepared for the IASB's discussion next week at its regular January 2013 meeting, the staff of the IASB concedes that the current requirements regarding hedge accounting would not be "grandfathered" as this would not agree with the new hedge accounting model. The staff takes the position that "[t]hose commentators who advocate grandfathering disagree with the model design". They also warn of possible unintended consequences in connection with grandfathering.

Comments on the EFRAG draft comment letter are invited by 21 February 2013.

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