Cash flow hedge accounting affected by the COVID-19 pandemic
FINANCIAL REPORTING INSIGHTS |
Questions have been posed to the Financial Accounting Standards Board (FASB) staff on how the postponement or cancellation of forecasted transactions related to the effects of the COVID-19 pandemic should be considered when applying cash flow hedge accounting in accordance with Topic 815 of the FASB’s Accounting Standards Codification (ASC), “Derivatives and Hedging.” As a result, the FASB staff recently issued a question-and-answer (Q&A) document addressing cash flow hedges where the forecasted transaction was possibly affected by the COVID-19 pandemic. The Q&A addresses whether, when a cash flow hedge has been discontinued, delays in the timing of the forecasted transactions that extend beyond the originally specified time period (or within a two-month period of time thereafter) may be considered rare cases, thus allowing amounts related to the hedge to remain in accumulated other comprehensive income.
The Q&A also addresses application of ASC 815-30-40-5 and the ability to accurately predict forecasted transactions in light of the COVID-19 pandemic. The Q&A indicates that, if an entity determines that missed forecasts were related to the effects of the COVID-19 pandemic, it would be acceptable to conclude that the entity has not exhibited a pattern of missing forecasts that would call into question its ability to accurately predict forecasted transactions and the propriety of using cash flow hedge accounting in the future for similar transactions.
RSM has addressed the effect of the COVID-19 pandemic on these and other hedge accounting and derivate valuation matters in our white paper, Coronavirus: Financial reporting considerations.