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FASB makes targeted improvements to hedge accounting requirements

  • FASB (US Financial Accounting Standards Board) (lt blue) Image

28 Aug 2017

The US Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities."

The ASU amends ASC 815 to "better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results." The Board believes that such amendments will (1) improve the transparency of information about an entity’s risk management activities and (2) simplify the application of hedge accounting.

In developing the targeted improvements, the FASB also considered opportunities to achieve convergence with IFRS 9 Financial Instruments. The FASB in Focus states:

How Does the FASB’s ASU Compare with International Financial Reporting Standards (IFRS)?

Although the language used to describe the hedge accounting guidance in the ASU and in IFRS 9, Financial Instruments, differs, there are several areas of alignment between the two standards, and it is expected that many common hedge accounting strategies will have similar outcomes related to hedging components of financial instruments and nonfinancial items and in the measurement of hedged items in fair value hedges of interest rate risk. However, differences still remain between the two standards in the criteria for qualifying for hedge accounting. Additionally, IFRS 9 retained the separate measurement and reporting of hedge ineffectiveness and does not have broad guidance on presentation.  

For public business entities, the ASU’s amendments are effective for fiscal years beginning after December 15, 2018, and interim periods therein. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. All entities are permitted to early adopt the ASU in interim periods after its issuance.

For more information, see the ASU, press release, FASB in Focus, video, and cost-benefit analysis on the FASB’s Web site. Also see Deloitte’s August 30, 2017, Heads Up newsletter.

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