The staff gave an overview of the comment letter analysis. In response to the question of whether respondents agreed with the proposals in the ED:

• 28 (48% of all comment letters, 50% of those who responded) agreed with the proposals.
• 28 (48% of all comment letters, 50% of those who responded) disagreed.
• 2 (4%) did not express a clear view or did not respond.

The staff identified and presented the following possible ways forward (some of which were suggested by respondents):

• Do nothing, i.e. reject the proposals in the exposure draft and retain the current version of IAS 39. The staff did not recommend this approach as it was clear that respondents were in need of clarity on this issue.
• Proceed with the proposed amendment, possibly with some alterations to address some of the main concerns of respondents. The staff did not recommend this approach as it would not address the conceptual issues identified during the development of the exposure draft.
• Proceed with an amendment that allows a highly probable intra-group forecast transaction to be designated as the hedged item at a group level. The amounts relating to the hedging instrument initially recognised in equity would be included in profit or loss when the hedged exposure affects consolidated profit or loss. The staff recommended this approach and the Board agreed. This approach would entail that the IASB proceed with an amendment that allows a highly probable intra-group forecast transaction to be designated as the hedged item for the purposes of the consolidated financial statements, as allowed by the previous version of IAS 39 as interpreted by IGC 137-14 Forecasted intra-group foreign currency transactions that will affect consolidated net income. The Board indicated that this solution was the only way around the IAS 21 concept that does not allow for a group functional currency. In addition, the staff proposed that re-exposure was not necessary.

The staff went on to present the following 'transition recommendations':

Effective date

The Staff recommended that the effective date of the proposed amendment would be accounting periods beginning on or after 1 January 2006, with earlier application encouraged.

Restatement of comparatives

For existing users of IAS 39, the amendment will not require restatement of comparatives as, in substance, the Staff recommendation is consistent with IGC137-14. Specifically with regard to the Staff proposal requiring recycling of any gain/loss from the hedging instrument held in equity to profit or loss whenever consolidated profit or loss is affected by the hedged exposure, the Staff recommends that given the practical considerations of requiring restatement of comparatives for this requirement alone, that groups should apply this requirement prospectively from the date of application of this amendment.

For first-time adopters of IAS 39, the issue of restatement of comparatives does not arise because they are exempt from restating comparatives in the first year of adoption. This means that IFRS 1 will not require amendment.

Application of Amendments from 1 January 2005

All hedging relationships have to be designated at the inception of a hedge. This means that from 1 January 2005 groups will not have known what the hedged item should be in order to obtain hedge accounting in the consolidated financial statements.

Given the practical difficulties being faced by constituents, as noted by the Board in the December Update, to provide groups with relief for the period between 1 January 2005 and the application date of the amendment the staff recommends the following solution:

• The Board permits an entity that designated a forecast intra-group transaction as a hedged item at the start of the annual period beginning on or after 1 January 2005, in a hedge that would otherwise qualify for hedge accounting, to use that designation to apply hedge accounting in consolidated financial statements from the start of the annual period beginning on or after 1 January 2005.
• When an entity designated an external forecast transaction, denominated in the functional currency of the entity entering into the transaction, the Board allows the entity to obtain hedge accounting in the consolidated financial statements in the period from the start of the annual period beginning on or after 1 January 2005 to the date of application of this amendment, provided that the hedge would otherwise have qualified for hedge accounting.

Some Board members expressed concern that whilst the above proposals were necessary in this particular case (as the Board had given indications that through the exposure draft, it was merely clarifying the existing IAS 39 requirements), it should not be viewed as tacit approval for constituents to apply the principles contained in exposure drafts. Those Board members reiterated the point that only the principles contained in final pronouncements should be applied.