Background 

Financial Reporting Exposure Draft (FRED) 51: ‘Draft amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland: Hedge Accounting' was published by the Financial Reporting Council (FRC) in November 2013.  Prior to the amendments (see below), the requirements within FRS 102 were narrow and did not permit hedge accounting in a number of common scenarios leading to volatility in profit or loss even where derivatives are transacted to reduce rather than increase risk.   

Project milestones

FRED 51 was published by the FRC in November 2013 with a comment period that ended on 14 February 2014.

In July 2014, the FRC issued Amendments to FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland': Basic financial instruments and Hedge accounting. 

The amendments replace the restrictive hedge accounting requirements previously in FRS 102 with a set of hedge accounting principles based on the IFRS 9 Financial Instruments hedge accounting model.  As a result of the amendments, there will be more opportunities for entities to apply hedge accounting. 

In addition to broadening the eligibility criteria, the amendments also remove the requirement that an entity must expect the hedging instrument to be highly effective in offsetting the hedged risk in order to apply hedge accounting.  Instead the amendments require there to be “an economic relationship between the hedged item and the hedging instrument”.  

Current status of the project

Amendments to FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland': Basic financial instruments and Hedge accounting was issued by the FRC in July 2014.  The amendments are applicable for accounting periods beginning on or after 1 January 2015.