Hedge Accounting

Do you have experience in hedge accounting? More importantly, do you have opinions on the reporting of hedge accounting?

This week, The Financial Accounting Standards Board (FASB) issued their latest discussion paper to solicit input on how to improve, simplify, and converge the financial reporting requirements for hedging activities.

Hedge accounting exists as a method for financial institutions and businesses to protect themselves from different economic risks associated with derivative financial instruments. The use of it, spelled out under the International Accounting Standards's IAS39 (Financial Instrument Recognition and Measurement).

 

The timeline for this process started in May 2010 with the FASB's proposed revisions to improve and simplify standards for financial reporting of financial instruments, including hedge accounting guidance. In December 2010, as part of its project to improve the accounting for financial instruments, the International Accounting Standards Board (IASB) issued its Exposure Draft (ED) Hedge Accounting, which seeks to align hedge accounting more closely with risk management while addressing inconsistencies and weaknesses in the existing hedge accounting model.

According to the FASB, differences exist between the International Financial Reporting Standards and the U.S. GAAP relating to hedge accounting. The revisions proposed by the ISAB's  Exposure Draft would result in more differences compared with the FASB’s current and proposed hedge accounting guidance. The FASB Discussion Paper asks stakeholders whether the IASB’s proposals are a better starting point for any changes to U.S. GAAP as it relates to derivatives and hedging activities.

“The FASB is issuing this Discussion Paper to determine whether our constituents think the IASB’s proposed changes would improve the accounting for hedging activities,” stated FASB Chairman Leslie F. Seidman. “The information received during the comment period will be helpful to both the FASB and the IASB as we deliberate issues pertaining to hedge accounting.”