FASB's ongoing efforts to simplify hedge accounting
INSIGHT ARTICLE |
The Financial Accounting Standards Board (the Board) issued a proposed Accounting Standards Update titled Derivatives and Hedging (Topic 815), Targeted improvements to Accounting for Hedging Activities in September 2016, with a comment period that ended in November 2016. The Board met in January and February 2017 to discuss the feedback received on the proposed update and redeliberate certain provisions. Tentative decisions reached to date are summarized on the FASB’s website.
At its February 15, 2017 meeting, the FASB decided to reverse its position included in the proposed update of not permitting entities to return to a qualitative assessment of effectiveness after a quantitative assessment of effectiveness was performed. The same principle and factors relevant to determining whether a qualitative assessment could be performed at hedge inception would be relevant in determining whether the entity could return to a qualitative assessment. Also, the FASB decided to provide additional relief to private companies that are not financial institutions. This relief is in the form of reduced documentation requirements at hedge inception as a private company would only need to document a statement of intention to hedge that identifies the hedging instrument, the hedged item or transaction and the nature of the risk being hedged. Additionally, private companies other than financial institutions would be able to take up until the date the next set of financial statements is available to be issued to perform and document the assessment of hedge effectiveness.
Redeliberations are expected to continue and possibly be completed during the March 2017 meeting. The effective date of the final standard is yet to be determined; however, the proposed update would permit early application as of the beginning of any fiscal year before the effective date.