Accounting for Financial Instruments—Hedge Accounting
Last updated on March 16, 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
*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 DocumentsOn 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.
- 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
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.
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.
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 (MARCH 8, 2017)The Board discussed the following:
The “Market Yield” Test
The Board decided that the market yield test in the proposed Update should be excluded from the final Update. This test would have required an entity to use the total contractual coupon cash flows in determining the fair value of the hedged item attributable to interest rate risk if, at hedge inception, the market yield of the hedged item is less than the benchmark interest rate. The result of this decision is that entities would be able to choose to use the total contractual coupon cash flows or the benchmark rate component cash flows determined at hedge inception for all fair value hedges of interest rate risk.
The “Last of Layer” Approach
The Board decided to incorporate the last of layer approach into the current hedge accounting project for fair value hedges of interest rate risk of prepayable assets.
The last of layer approach would allow an entity to designate as the hedged item the last dollar amount of either of the following:
- A prepayable asset, such as a prepayable mortgage-backed security
- A closed portfolio of prepayable assets, such as residential mortgage loans.
In combination with the Board’s previous decisions on partial term and benchmark coupon cash flow designations, an entity also would be able to apply the “similar assets” test to the closed portfolio qualitatively and only at inception of the hedging relationship.
*Tentative Board Decisions Reached to Date (As of MARCH 8, 2017)Tentative Board Decisions to Date During Deliberations.
Next StepsThe Board will continue to redeliberate at future meetings the issues that it agreed to reconsider at the January 25, 2017 Board meeting.
*Board/Other Public Meeting Dates—CurrentThe 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.
|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.|
*Contact InformationJeff Gabello
Supervising Project Manager
Assistant Project Manager
Postgraduate Technical Assistant
Postgraduate Technical Assistant