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Reporting Performance

Date recorded:

The Board has begun to use the term 'statement of comprehensive income' rather than 'statement of performance'. This is consistent with the terminology in FASB Statement 130.

The Board discussed how to report the performance of cash flow hedges. Under IAS 39, for a cash flow hedge, the gain or loss on the hedging instrument is initially recognised directly in equity. Subsequently, the amounts recognised directly in equity are included in net profit or loss in the same period or periods during which the hedged asset or liability acquisition or firm commitment or forecasted transaction affects net profit or loss (for example, when the acquired asset is depreciated or when a forecasted sale actually occurs). The result is that income or expenses on the hedging instrument is recognised in the same period as those on the hedged items. In the case of acquired assets, including the gain or loss on the hedging instrument as part of the cost basis of the acquired asset (with consequenial adjustment of depreciation) is known as 'basis adjustment'.

The Board considered four alternative presentation approaches for cash flow hedges:

  • Retaining the IAS 39 approach, sometimes called 'recycling with basis adjustment'.
  • No recycling. This, in effect, is a prohibition of cash flow hedge accounting because the gain or loss on the hedging instrument would be recognised immediately rather than deferred in equity.
  • Quasi-recycling. Under this approach, income and expenses on the hedging instrument are reported in a separate 'cash flow hedging' category in the statement of comprehensive income and are subsequently recycled within the statement of comprehensive income into the same line item in which the hedged item is reported.
  • Basis adjustment. The income and expenses on hedging instruments are deferred in equity the balance sheet until the hedged item is recognised.
Conceptually, the Board favoured the 'no recycling' approach. However, it concluded that this solution should be considered as part of a future comprehensive project on accounting for financial instruments. As a compromise, a majority of the Board favoured the 'quasi-recycling' approach and a a minority favoured the 'basis adjustment' approach.

The Board instructed its staff to prepare a summary paper on the project that will be discussed at meetings of the Board, national standard setters, and Standards Advisory Council in September, October and November. Field visits with financial statement preparers and users are also planned.

Regarding how to proceed in this project, the Board decided that the project should move directly to an exposure draft, rather than first issuing a discussion paper. Publication of the ED is planned for first quarter 2003. Click here for a Timetable for IASB projects.

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