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FASB issues two proposals in response to EITF consensuses-for-exposure

  • FASB (US Financial Accounting Standards Board) Image
  • EITF (Emerging Issues Task Force) (mid blue) Image

Aug 06, 2015

The FASB has issued two proposed ASUs in response to the EITF consensuses-for-exposure on Issues 15-D and 15-E. One of the proposals provides guidance on the effect of derivative contract novations on existing hedge accounting relationships, and the other would simplify the requirements related to contingent put and call options in debt instruments.

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships

This proposal clarifies that “a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedge accounting relationship provided that all other hedge accounting criteria (including those in paragraphs 815-20-35-14 through 35-18) continue to be met.”

The proposed ASU asks stakeholders whether the Board should provide relief by allowing entities to apply a retrospective transition method to contracts that were (1) dedesignated from a hedging relationship to which the shortcut method was originally applied and then (2) designated in a hedging relationship to which the long-haul hedge effectiveness method was subsequently applied.

Contingent Put and Call Options in Debt Instruments

This proposal clarifies “the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts.” Further, “[a]n entity performing the assessment under the proposed amendments would be required to assess the embedded call (put) options solely in accordance with the four-step decision sequence.”

Comments on both proposed ASUs are due by October 5, 2015. For more information, see Deloitte’s June 2015 EITF Snapshot.

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