Project Update

Accounting for Financial Instruments—Hedge Accounting

Last updated on June 22, 2017. 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
Outreach/Field Work
*Decisions Reached at the Last Meeting
*Tentative Board Decisions Reached to Date
*Next Steps
*Board/Other Public Meeting Dates—Current
Contact Information

Project Objective and Background

This 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 September 8, 2016, the FASB issued proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The comment letter period ended on November 22, 2016.
  • Download the September 8, 2016 proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
  • Read the FASB in Focus which summarizes the proposed Accounting Standards Update.
  • Read the press release on the proposed Accounting Standards Update.
  • Read comment letters on the proposed Accounting Standards Update.
  • Read a feedback summary on the proposed Accounting Standards Update.
On February 9, 2011, the FASB issued an 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.
On May 26, 2010, the FASB issued one comprehensive proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities—Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815). The comment period ended on September 30, 2010.
On June 6, 2008, the FASB issued an Exposure Draft, Accounting for Hedging Activities. The comment period ended on August 15, 2008.

Outreach/Field Work


Outreach


Staff and Board members have conducted various outreach activities with a variety of stakeholders during the comment period of the Exposure Draft of the proposed Accounting Standards Update.

Webcast

On October 17, 2016, the FASB hosted an educational webinar, IN FOCUS: FASB’s Proposed Accounting Standards Update on Hedging, which provided the history of the hedging project and why it was added to the FASB’s technical agenda, the proposed changes to the hedge accounting guidance and presentation and disclosure guidance in the proposed Update, and the transition guidance for the proposed Update. An archived version of the webinar is available on-demand. Please note: Registration (or the email address used to previously register) is required to view the archived webinar; CPE is not available for the archived webinar.

Roundtable

On December 2, 2016, the FASB hosted two public roundtables in Norwalk, CT, which provided an opportunity for those who had submitted comment letters to provide their feedback on the proposed Update.

*Decisions Reached at the Last Meeting (JUNE 7, 2017)

The Board discussed the following:
  1. Sweep issues arising from drafting and external review
  2. Additional transition issues arising from redeliberations and external review
  3. Substantive drafting changes to be made to the final Update
  4. Effective date and early adoption
  5. Analysis of costs, benefits, and complexities of decisions reached to date on hedge accounting and permission to ballot a final Accounting Standards Update.
Sweep Issue Arising from Drafting and External Review

The Board decided the following:
  1. To expand the scope of the private company hedge documentation timing decision to not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market).
  2. To expand the scope of the amortization approach for amounts excluded from the assessment of effectiveness to hedges of a net investment in a foreign operation.
Additional Transition Issues Arising from Redeliberations and External Review

The Board decided the following:
  1. An entity is not required to assess similar hedges in a similar manner when comparing similar hedging relationships executed before and after the adoption date for any of the following:
    1. For (1) hedging relationships executed before the adoption date designated under the shortcut method for which the hedge documentation was not amended to specify a long-haul method that would be employed if use of the shortcut method was not or no longer is appropriate and (2) hedging relationships executed after the adoption date designated under the shortcut method for which a long-haul method is specified if use of the shortcut method was not or no longer is appropriate.
    2. For (1) hedging relationships executed before the adoption date for which the hedged risk was not amended to a contractually specified component or a contractually specified interest rate and (2) hedging relationships executed after the adoption date for which the hedged risk is the variability in cash flows attributable to changes in a contractually specified component or a contractually specified interest rate.
    3. For (1) hedging relationships executed before the adoption date for which amounts excluded from the assessment of effectiveness are recorded in earnings under a mark-to-market approach and (2) hedging relationships executed after the adoption date for which amounts excluded from the assessment of effectiveness are recorded in earnings under an amortization approach.
  2. An entity will not be required to assess similar hedges in a similar manner when an entity assesses effectiveness on a qualitative basis, as proposed in the proposed Update. Qualitative assessments may be performed on a hedge-by-hedge basis.
  3. An entity may elect in transition to transfer financial assets classified as held-to-maturity that qualify as hedged items under the last of layer method to the available-for-sale category.
  4. Cross-currency basis spreads may be excluded from the assessment of effectiveness for existing fair value hedging relationships as of the date of adoption.
  5. Private companies that are not financial institutions and not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) must make transition elections before the next set of interim (if applicable) or annual financial statements is available to be issued. All other entities must make those elections before the first effectiveness testing date after adoption.
  6. For fair value hedges of interest rate risk existing as of the date of adoption for which an entity modifies the measurement of the hedged item to the benchmark rate component cash flows, an entity may elect to partially dedesignate a portion of the hedged item and reclassify the basis adjustment associated with the portion of the dedesignated hedged item to the opening balance of retained earnings.
Substantive Drafting Changes to Be Made to the Final Update

The Board decided that no additional analysis or information was required with regard to the substantive drafting amendments to be made to the final Update.

Effective Date

The Board decided that the effective date for public business entities will be for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

The Board also decided that the effective date for entities other than public business entities will be for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early Adoption

The Board decided to permit early adoption in any interim or annual period upon issuance of the final Update.

Analysis of Costs, Benefits, and Complexities of Decisions Reached to Date

The Board decided that it has received sufficient information and analysis to make an informed decision on the issues presented. The Board also concluded that the benefits of the amendments justify the related costs.

Permission to Ballot a Final Accounting Standards Update

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

Formation of a Transition Resource Group

The Board decided that a transition resource group was not necessary to address implementation questions.

*Tentative Board Decisions Reached to Date (As of JUNE 7, 2017)

Tentative Board Decisions Reached to Date During Deliberations.

*Next Steps

The staff is in the process of drafting a final Accounting Standards Update, which is expected to be issued in the third quarter of 2017.

*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.

*June 7, 2017 Board Meeting—Decisions regarding sweep issues, transition issues, effective dates, cost-benefit analysis, permission to ballot, and whether a TRG should be formed
March 22, 2017 Board Meeting—Decisions regarding cross currency basis spreads and the recognition of amounts excluded from assessments of effectiveness
March 8, 2017 Board Meeting—Decisions regarding the market yield test for use of benchmark coupon cash flows and the “last of layer” approach for fair value hedges of interest rate risk of prepayable instruments.
February 15, 2017 Board Meeting—Decisions regarding returning to qualitative assessments of hedge effectiveness after performing a quantitative assessment of hedge effectiveness and changes to the requirements for private company hedge documentation.
January 25, 2017 Board Meeting—Discussion about the feedback received on September 8, 2016 proposed Accounting Standards Update, and discuss items for affirmation and potential items for redeliberation based on the feedback received on the proposed Update.
July 13, 2016 Board Meeting—Decisions regarding sweep issues, cost and benefits, and permission to ballot.
March 23, 2016 Board Meeting—Decisions regarding transition alternatives
December 21, 2015 Board Meeting—Decisions regarding additional hedge documentation relief for private companies.
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.
Click here for minutes of public meetings on the accounting for financial instruments project that were held related to the issuance of the May 2010 proposed Update on financial instruments.

Contact Information

Jeff Gabello
Supervising Project Manager
jjgabello@fasb.org

Adam Kamhi
Valuation Fellow
akamhi@fasb.org

Julie Um
Assistant Project Manager
jcum@fasb.org

Rosemarie Sangiuolo
Project Consultant
rsangiuolo@fasb.org

Andrew Thornburg
Practice Fellow
athornburg@fasb.org

Caro Baumann
Postgraduate Technical Assistant
cbaumann@fasb.org

Shane Kinley
Postgraduate Technical Assistant
skinley@fasb.org