Last updated on January 25, 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 address issues related to accounting for basis adjustments and multiple-layer hedging strategies within the last-of-layer method.
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 or sub-pools within the closed pool?
- Is it permissible for an entity to employ a multiple-layer hedging strategy to the 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 January 22, 2020)
January 22, 2020
The Board discussed the following topics related to the last-of-layer hedging proposed amendments.
The Board decided not to add or amend the last-of-layer disclosure requirements in Topic 815, Derivatives and Hedging, related to the addition of the proposed multiple-hedge model.
Regarding transition, the Board decided that:
- The proposed amendments, except for those related to disclosures required by Topics other than Topic 815, would be applied on a prospective basis.
- An entity would be permitted to modify documentation without dedesignating a last-of-layer hedging relationship existing as of the date of adoption to add one or more hedges to the closed portfolio if the requirements for the amended last-of-layer method are met. In those cases, an entity also would be permitted to modify documentation without dedesignating the existing hedging relationship to add the new elective documentation specifying the order in which multiple hedging relationships associated with the closed portfolio would be discontinued in the event of a breach.
- Fair value hedge basis adjustments allocated to an asset that exists on an entity’s balance sheet on the date of adoption would remain allocated to that asset over the remaining life of the asset. The fair value hedge basis adjustments allocated to those assets existing on the balance sheet on the date of adoption would be amortized over the remaining lives of the assets to which they were allocated in the same manner as any premium or discount associated with those assets. Any new last-of-layer fair value hedge basis adjustments recorded after the date of adoption would be maintained at the closed portfolio level.
- An entity would have the option to apply the proposed amendments related to disclosures required by Topics other than Topic 815 on a prospective basis as of the date of adoption or on a full retrospective basis.
- An entity would be required to disclose the nature of and reason for the change in accounting principle related to accounting for last-of-layer fair value hedge basis adjustments in transition.
- For an entity that has not yet adopted Accounting Standards Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as of the issuance date of a final Update of the proposed last-of-layer amendments, the proposed last-of-layer amendments related to Update 2016-13 would be effective upon the adoption of Update 2016-13. For an entity that has not yet adopted the amendments in Update 2016-13 as of the issuance date of a final Update of the proposed last-of-layer amendments and chooses to early adopt the amendments in Update 2016-13 before the effective date of the proposed last-of-layer Update, adoption of all amendments in the last-of-layer Update would be required upon the adoption of Update 2016-13. This decision does not affect when an entity is required to adopt the amendments in Update 2016-13.
Tentative Board Decisions Reached to Date (as of January 22, 2020)
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.
|January 22, 2020||Board Meeting—The Board discussed in a decision-making meeting disclosures and transition for the last-of-layer hedging 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.|
The staff will draft a proposed Accounting Standards Update and distribute that staff draft for external review. Following external review, the staff will present to the Board any additional issues and an analysis of costs and benefits.
Supervising Project Manager
Postgraduate Technical Assistant
Postgraduate Technical Assistant