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Replacement of IAS 39: Hedge Accounting

Date recorded:

Summary of outreach activities [Educational Session]

The Boards considered the feedback received on the hedge accounting from the recent outreach activities undertaken by both Boards. The overriding consensus from constituents was that the Boards should consider a principle-based approach for hedge accounting that would lead to simplification of the hedge accounting requirements.

Many constituents asked for simplification of the rules relating to designation of hedge accounting items, testing of effectiveness, and eligibility of hedge accounting as well as clearer alignment of risk management practices to the hedge accounting guidance. On the other hand, some of the FASB constituents from the user community preferred eliminating cash flow hedging instead of using its mechanics for current fair value hedging (solution preferred by the IASB and its constituents).

The Boards discussed the high level principles of hedge accounting and its alignment with risk management practices. Some Board members felt that such approach might lead to increase earnings management and thus would not support it. Others would prefer if that approach was complemented by comprehensive disclosures that would show the primary statements without the effects of hedge accounting.

This was an educational session, no decisions were made.

The Boards also provided a brief update from the recent strategic meeting on the updated plan for the financial instruments project. The Boards agreed to deliberate hedge accounting as well as classification and measurement of financial liabilities jointly in January and February 2010. For this purpose the Boards will meet twice a month in January and February 2010. Following deliberation phase, the FASB will expose its comprehensive model for comments. At the same time, the IASB will expose the remaining parts of its model. Both Boards plan to provide a joint description of differences between the models and align questions asked to constituents.

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