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U.S. comment letter on interest rate swaps

Published on: Aug 23, 2013

An excerpt from the comment letter is shown below:

[W]e have significant objections about certain aspects of the proposed ASU.

We do not support the combined instruments approach because we believe it is not consistent with the fundamental cornerstones of derivative accounting stated in FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. In addition, an interest rate swap that has not been recorded on the statement of financial position reduces transparency and may mask certain risks that arise from the swap (e.g., the credit risk of the swap counterparty). We do not believe that the needs of nonpublic entities warrant  such a dramatic departure from the conceptual foundation of the existing derivative and hedge accounting models. If the Board disagrees with us and  ultimately decides to permit entities to use the combined instruments approach, it should significantly narrow its application with additional criteria which we note in the appendix to this letter.

We recommend that the proposal’s transition be limited to prospective application (1) to reduce complexity and (2) because we do not believe it is appropriate for entities to apply hedge accounting with the benefit of hindsight. Such limitation appears to be consistent with the Board’s historical practice for other amendments to the hedging requirements.

Full text of the comment letter is available below.

Deloitte Comment Letter Image

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