Accounting for Financial Instruments—Hedge Accounting
Last updated on October 14, 2015. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Updated sections are indicated with an asterisk *)
This project update summarizes the project activities and decisions of the IASB and the FASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.
Project Objective and Background
Due Process Documents
IASB Due Process Documents
*Decisions Reached at the Last Meeting
*Tentative Board Decisions Reached to Date
*Board/Other Public Meeting Dates—Current
Project Objective and BackgroundThis project addresses issues related to hedge accounting for financial instruments and non-financial items. The objective of this project is to make targeted improvements to the hedge accounting model based on the feedback received from preparers, auditors, users and other stakeholders. The Board will consider opportunities to align with IFRS 9 Financial Instruments.
Click here for the project objective and background information on the overall Accounting for Financial Instruments project.
Due Process Documents
On February 9, 2011, the FASB issued a Discussion Paper—Invitation to Comment—Selected Issues about Hedge Accounting to solicit input on the IASB’s Exposure Draft, Hedge Accounting. The comment period ended on April 25, 2011.
- Download the Invitation to Comment on Hedge Accounting
- Read the FASB news release introducing the Invitation to Comment on hedge accounting
- Read comment letters on the Invitation to Comment on hedge accounting
- Read a comment letter summary on the Invitation to Comment on hedge accounting
- Download the Proposed Accounting for Financial Instruments Update
- Read the news release introducing the proposed Accounting Standards Update
- Read the FASB In Focus which summarizes the proposed Accounting Standards Update
- Listen to a podcast in which former FASB Chairman Robert Herz discusses the proposed Accounting Standards Update
- Read the Frequently Asked Questions document which clarifies the proposed guidance by answering common questions received through outreach efforts
- Read comment letters on the proposed Accounting Standards Update
- Read the feedback summary on the proposed Accounting Standards Update
- Read the Summary of Feedback Received through Meetings and Teleconferences With Users of Financial Statements on the proposed Accounting Standards Update
- Accounting for Hedging Activities Exposure Draft
- Accounting for Hedging Activities Comment Letters
- Accounting for Hedging Activities Comment Letter Summary
IFRS 9 Financial Instruments
Click here to access the IASB's hedge accounting project page for more information about the IASB’s deliberations.
*Decisions Reached at the Last Meeting (October 7, 2015)The Board continued deliberations on the accounting for hedging activities, specifically discussing net investment hedges, excluded components for net investment and cash flow hedges, use of total coupon cash flows in fair value hedges of benchmark interest rate risk, sub-benchmark hedges, and contract features that limit exposure to hedged risks. A description of Board decisions follows.
Net Investment Hedges
For qualifying net investment hedges, entities would record the entire change in the fair value of the hedging instrument that is included in the assessment of hedge effectiveness in the cumulative translation adjustment section of other comprehensive income (OCI). In the period(s) the hedged item affects earnings, entities would reclassify changes in fair value of the hedging instrument recorded in OCI to the same income statement line item where the earnings effect of the hedged item is presented. This decision would effectively eliminate the recognition of hedge ineffectiveness for net investment underhedges.
Net Investment Hedges—Excluded Components
The current guidance in Topic 815 as it relates to the treatment of the portion (if any) of the hedging instrument’s change in fair value that is excluded from the assessment of hedge effectiveness in net investment hedges will be retained without change. Entities would continue to recognize the portion of the hedging instrument’s change in fair value that is excluded from the assessment of hedge effectiveness immediately in earnings. The Board decided not to provide guidance on how such changes would be presented.
Cash Flow Hedges—Excluded Components
As under current GAAP, entities must recognize immediately in net income the portion (if any) of the hedging instrument’s change in the fair value that is excluded from the assessment of hedge effectiveness in a cash flow hedge. However, entities would be required to present recognized amounts in the same income statement line item where the earnings effect of the hedged item is presented.
Use of Total Coupon Cash Flows in Fair Value Hedges of Benchmark Interest Rate Risk and Sub-Benchmark Hedges
An entity would have the choice to use either the cash flows associated with the benchmark interest rate or the total coupon cash flows in calculating the change in the fair value of the hedged item attributable to interest rate risk in a fair value hedge of benchmark interest rate risk. If the effective interest rate of the financial instrument is less than the benchmark interest rate on the date of hedge designation (“sub-benchmark” hedge), however, an entity would be required to use the total coupon cash flows.
Cash Flow Hedges of Nonfinancial Items—Contract Features That Limit Exposure
A cap, floor, or negative basis associated with the price of a contractually specified component of a nonfinancial item would not prohibit an entity from designating that contractually specified component as the hedged risk but would potentially affect the assessment of effectiveness should the price of the contractually specified component move above or below the exposure limit.
*Tentative Board Decisions Reached to Date (As of October 7, 2015)
*Next StepsThe staff will continue to develop a draft proposed Accounting Standards Update based on the tentative decisions reached by the Board. Later in the drafting process, the Board will discuss any additional issues that arise during drafting, the benefits and cost of the proposed Accounting Standards Update, transition, and comment period.
*Board/Other Public Meeting Dates—Current
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.
|*October 7, 2015||Board Meeting—Decisions regarding net investment hedges, the treatment of excluded components for cash flow hedges and net investment hedges, the use of the total coupon cash flows in fair value hedges, sub-benchmark hedges, and contract features that limit exposure in cash flow hedges of nonfinancial items.|
|June 29, 2015||Board Meeting—Decisions regarding the qualifying threshold, component hedging for nonfinancial items, benchmark interest rates, application issues related to fair value hedges of interest rate risk, the shortcut method, and presentation and disclosures.|
|June 10, 2015||Board Meeting—Discussions about hedges of benchmark interest rate risk and overall changes to the hedge accounting model.|
|May 27, 2015||Board Meeting—Discussions about the presentation of hedge ineffectiveness, disclosures related to cumulative-basis adjustments in fair value hedges, tabular disclosures about the effect of hedge accounting on statement of financial performance line items, and hedge documentation requirements.|
|April 22, 2015||Board Meeting—Discussions about selected benchmark interest rate hedging issues, shortcut and critical terms match methods, and the effectiveness threshold for hedges of financial assets and liabilities.|
|April 7, 2015||Board Meeting—Discussions about the presentation of hedge ineffectiveness, defining a reasonably effective threshold, fair value hedges of nonfinancial items, disclosures for hedges of nonfinancial items, and qualitative effectiveness testing.|
|February 25, 2015||Board Meeting—Discussions about the effectiveness threshold and qualitative versus quantitative testing of hedge effectiveness, as well as component hedging for nonfinancial items.|
|November 5, 2014||Board Meeting—Project added to the technical agenda|
|September 23, 2014||Board Meeting—Discussions about feedback received on the hedge accounting portion of the Board’s May 2010 proposed Accounting Standards Update. The Board also discussed their preferences regarding the approach in carrying out the hedge accounting project.|
|January 29, 2014||Board Meeting—Decision to perform research on the scope of the hedge accounting phase of the project|
|May 2, 2012||Education Session—Discussions about the major themes that emerged through outreach efforts with financial statement users regarding derivatives and hedge accounting.|
|November 30, 2011||Education Session—Discussions about the IASB’s hedge accounting model, presented by the IASB staff. Click here for the slides used in the IASB’s presentation.|
|August 24, 2011||Board Meeting—Discussions about the comments received on the Invitation to Comment, Selected Issues about Hedge Accounting|
|March 16, 2011||Joint Board Meeting—Discussions about the outreach and comment letter summaries on the IASB’s Exposure Draft.|
Contact InformationJeffrey Gabello
Supervising Project Manager
Assistant Project Manager
Postgraduate Technical Assistant
Postgraduate Technical Assistant