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German standard setter sees 'perception' problem with macro hedge accounting

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20 Feb 2013

The Accounting Standards Committee of Germany (Deutsches Rechnungslegungs Standards Committee, DRSC) has publicly released its response to the European Financial Reporting Advisory Group (EFRAG) consultation around the transition from IAS 39 to IFRS 9 as part of the implementation of the forthcoming IASB's hedge accounting section of IFRS 9. The DRSC expresses concern about perception problems with what constitutes 'macro hedging'.

On 18 January 2013, the EFRAG issued a draft comment letter on the IASB staff's review draft of the forthcoming general hedge accounting section of IFRS 9 Financial Instruments.

In the letter, EFRAG expressed concern that its field testing of the review draft revealed uncertainty as to whether the introduction of the general hedge accounting requirements would change the way entities deal with macro hedge relationships.  Accordingly, the draft EFRAG letter suggested wording changes to support the IASB's goal of maintaining the status quo of macro hedge accounting until the macro hedge accounting project is completed.  The draft letter was discussed at the IASB's January meeting.

The DRSC's response to the EFRAG letter makes the following observations:

As we see it, the issue highlighted by some in EFRAG’s field test... seems to be a perception issue: There seems to be a different understanding by the IASB and some entities as to what constitutes a macro hedge and what does not... The issue is not that the IASB, by shifting the paragraphs into IFRS 9, has changed the literature; rather, the issue is that some entities think what their accounting people are doing is apply macro hedging – which, technically speaking, is not the case. Therefore, we do not believe that the issue can be resolved in the way that EFRAG suggests.

Notwithstanding the above analysis, the DRSC does agree with EFRAG that entities should not be forced to change their hedge accounting practices twice within a short time frame, as the general and macro hedging phases of the IASB's overall financial instruments project are completed.

Click for access to the full letter (link to DRSC website).

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