FASB makes tentative hedging decisions and authorizes drafting of a proposed ASU

Published on: 14 Jul 2016

At the FASB’s meeting yesterday about its project to make targeted improvements to hedge accounting, the FASB (1) made tentative decisions about a number of issues identified by staff outreach and (2) authorized its staff to draft a proposed Accounting Standards Update (ASU) for the project. The Board tentatively decided to:

  • Allow entities to apply the critical-terms-match (CTM) method to a cash flow hedge of a group of forecasted transactions when all of those transactions occur within 31 days of the maturity of the hedging derivative and all other CTM criteria are satisfied.
  • Amend a criterion for application of the shortcut method to allow partial-term fair value hedges to qualify for the shortcut method.
  • Eliminate use of the retrospective method as a transition alternative.
  • Mandate that when an entity determines that it is probable that a hedged forecasted transaction will not occur, the entity will record the amounts reclassified out of accumulated other comprehensive income for that hedging relationship in earnings on the same income statement line that would have been affected by the forecasted transaction.

The Board also tentatively concluded that the benefits of the amendments that will be proposed will outweigh the related implementation costs.

The FASB still plans on issuing a proposed ASU for this project sometime by the end of the third quarter, and it tentatively decided to provide a 75-day comment period.

For more information, refer to the handout for the meeting.


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