This site uses cookies to provide you with a more responsive and personalised service. By using this site you agree to our use of cookies. Please read our cookie notice for more information on the cookies we use and how to delete or block them.
The full functionality of our site is not supported on your browser version, or you may have 'compatibility mode' selected. Please turn off compatibility mode, upgrade your browser to at least Internet Explorer 9, or try using another browser such as Google Chrome or Mozilla Firefox.

FASB proposes changes to hedge accounting

  • FASB document Image

Sep 08, 2016

The FASB has issued a proposed ASU, “Targeted Improvements to Accounting for Hedging Activities.”

The proposed ASU would improve “how the economic results of an institution’s risk management activities are portrayed.” Specifically, the proposal:

  • Expands “the use of component hedging for both nonfinancial and financial risks.”
  • Refines “the measurement techniques for hedged items in fair value hedges of benchmark interest rate risk.”
  • Eliminates “the separate measurement and reporting of hedge ineffectiveness.”
  • Requires, “for cash flow and net investment hedges[,] that all changes in fair value of the hedging instrument included in the hedging relationship be deferred in other comprehensive income and released to the income statement in the period(s) when the hedged item affects earnings.”
  • Requires that “changes in the fair value of hedging instruments be recorded in the same income statement line item as the earnings effect of the hedged item.”
  • Requires “enhanced disclosures to highlight the effect of hedge accounting on individual income statement line items.”

In addition, the proposal would simplify the application of hedge accounting by:

  • “Providing more time for the completion of initial quantitative assessments of hedge effectiveness.”
  • “Allowing subsequent assessments of hedge effectiveness to be performed on a qualitative basis when an initial quantitative test is required.”
  • “Clarifying the application of the critical terms match method for a group of forecasted transactions.”
  • “Allowing an institution that elects the shortcut method to continue hedge accounting by using a “long-haul” method to assess hedge effectiveness if use of the shortcut method was not or no longer is appropriate after hedge inception.”

Comments on the proposed ASU are due by November 22, 2016; however, for those who are interested in participating in public roundtable discussions on the proposal, the FASB has asked for comments by November 4, 2016. For more in­for­ma­tion, see Deloitte's Heads Up newsletter as well as the press release, FASB in Focus, and pro­posed ASU on the FASB’s Web site.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.