Last updated on April 7, 2021. Please refer to the Current Technical Plan for information about the expected release dates of exposure documents and final standards.
(Sections updated on the date above are indicated with an asterisk *)
Project Objective and Background*
Objective:The objective of this project is to expand the existing last-of-layer fair value hedging method from a single-layer model to a multiple-layer model and clarify the accounting for and disclosure of basis adjustments.
Background:One of the major changes to the hedge accounting guidance made in Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815)—Targeted Improvements to Accounting for Hedging Activities, was the addition of the last-of-layer method. For a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, the last-of-layer method allows an entity to designate an amount that is not expected to be affected by prepayments, defaults, and other events affecting the timing and amount of cash flows. Under this designation, prepayment risk is not incorporated into the measurement of the hedged item.
Following the issuance of Update 2017-12, stakeholders raised issues around the implementation of the last-of-layer method. Specifically, they asked:
- How and when is an entity permitted or required to allocate the last-of-layer basis adjustment to the individual assets within the closed pool?
- Is it permissible for an entity to employ a multiple-layer hedging strategy for a single closed portfolio?
Exposure Draft:There are no exposure documents at this time.
There are no media releases or educational materials at this time.
Media Releases and Educational Materials
Decisions Reached at Last Meeting (as of March 31, 2021)
March 31, 2021
The Board discussed external review comments on a draft of a proposed Accounting Standards Update, sweep issues, and whether to issue a proposed Update. (Previously this project was titled “Hedging—Last-of-Layer Method.”) The Board decided to rename the last-of-layer method the portfolio layer method.
Portfolio Layer Method—Multiple-Layer Model
The Board decided the following related to the attributes of assets included in the closed portfolio:
- All assets in the closed portfolio should have a contractual maturity date on or after the end of the earliest-ending hedge period of hedges associated with the closed portfolio. For each period hedged, the closed portfolio should include an amount of assets with a contractual maturity date on or after the end of the hedge period that is greater than the aggregate amount of the hedged layers. This would allow an entity to separate the closed portfolio into subgroups based on the contractual maturity dates of the assets in the closed portfolio.
- All assets in the closed portfolio should be or should become prepayable by the end of the latest-ending hedge period of hedges associated with the closed portfolio.
The Board decided the following:
- For any basis adjustments allocated to individual assets in the closed portfolio before the adoption of a final Accounting Standards Update, an entity would be required to reverse any previous effect of allocating those basis adjustments by means of a cumulative-effect adjustment to the opening balance of retained earnings and the balance sheet line items (as appropriate) in the year of adoption.
- An entity would have the option to reclassify debt securities from held to maturity to available for sale in transition if the debt securities would qualify for hedge accounting under the portfolio layer method. The decision of which debt securities to reclassify should be made as of the date of adoption.
The Board decided on a 60-day comment period for the proposed Accounting Standards Update.
Tentative Board Decisions Reached to Date (as of March 31, 2021)
A summary of the Board’s tentative decisions reached to date can be found here.
The Board meeting minutes, handouts, and videos 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.
Board Meeting Materials and Information*
The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.
|March 31, 2021*||Board Meeting—The Board discussed external review comments on a draft of a proposed Accounting Standards Update, sweep issues, and whether to issue a proposed Update. The Board changed the title of the project from “Hedging—Last-of-Layer Method” to “Fair Value Hedging—Portfolio Layer Method.”|
|January 22, 2020||Board Meeting—The Board continued initial deliberations, discussing disclosures and transition for the proposed amendments.|
|October 16, 2019||Board Meeting—The Board discussed in a decision-making meeting the last-of layer hedging topics that were originally discussed at its August 21, 2019 non-decision-making meeting.|
|August 21, 2019||Board Meeting—The Board discussed the issues encountered in developing a last-of-layer model for multiple layers and the accounting for fair value hedge basis adjustments in a non-decision-making meeting.|
|March 28, 2018||Board Meeting—The Board added the Last-of-Layer project to its technical agenda.|