What you need to know about the new hedge accounting standard

Q. What are the main changes that the new rules will introduce?

JK: In developing the new standard, the FASB decided that the types of items and transactions currently eligible for hedge accounting would continue to be eligible under the amendments to the next standard. The issues the board considered in this project are expected to increase the number and types of transactions that would qualify for hedge accounting.

Some of the most significant changes include:

  • Extend the capacity to hedge commodity-related risks
  • Better reflect the economics of interest rate hedges
  • Allow more qualitative assessments of the hedging relationship
  • Present the results of hedge accounting in a more understandable way so that investors and other users of financial statements can more easily understand the full impact of hedge accounting on financial statements
  • Give businesses more time to complete coverage documentation

Q. How will the rule changes impact medium-sized private companies?

JK: The FASB has received overwhelmingly positive feedback on the proposed changes to the hedge accounting model from mid-sized companies. In fact, companies of all sizes have indicated that the proposals would better reflect the economics of their risk management activities. Many people have expressed an interest in early adoption of the final standard.

Private companies of all sizes will have more time to meet documentation requirements, since they have fewer financial reporting requirements and more limited resources than large public companies.

Q. What impact will they have on investors?

JK: During the development of the standard, investors and other users of financial statements expressed a desire for improved information that would help them better understand a company’s risk exposures and risk management activities. business. Therefore, the new standard will require improved information about hedging activities and the effect that these activities have on the financial statements. This will allow investors to see more clearly the effects of hedge accounting on individual line items in the income statement.

Q. Are there specific areas that will be most affected by the rule change?

JK: Hedge accounting is optional. Therefore, any company that chooses to apply hedge accounting will likely benefit from the changes. The changes made to this update of accounting standards will help financial institutions and non-financial corporations to better reflect their risk management activities in their financial statements.

More information on the standard is available on the FASB website website.

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