Deloitte comment letter on IASB DP 2014/1 'Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging'

Published on: 20 Oct 2014

Deloitte Touche Tohmatsu Limited has responded to the International Accounting Standards Board’s (IASB) Discussion Paper DP 2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging.

The discussion paper provides a “Portfolio Revaluation Approach” (PRA), which adjust the measurement of the portfolio of exposures for changes in the hedge risk. We are supportive of the IASB in the development of an approach to account for dynamic risk management activities; however, we do not support the PRA as stated in the discussion paper because it will (1) conflict with the accounting principles in the conceptual framework, (2) require risk management activities to be defined in order to determine what is in or out of the revaluation model, and (3) not build on the classification, measurement and general hedge accounting concepts already established in IFRS 9. In addition, we believe that a portfolio hedging solution should be examined for insurers and other non-financial entities.

We also believe several considerations should be explored to reduce the complexity of application of the hedge accounting based solution to portfolio hedges of interest rate risk in IAS 39. These considerations are:

  • the eligibility of core deposits as hedged items;
  • valuing assets, liabilities and firm commitments hedged for interest rate risk on a basis of behaviouralised, rather than contractual, cash flows;
  • hedging the ‘bottom layer’ of a portfolio of prepayable loans; and
  • the designation of LIBOR when the yield on the instrument is sub-LIBOR.

Download the full comment letter below.


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