Project Update

Accounting for Financial Instruments—Hedge Accounting—Joint Project of the FASB and IASB

Last updated on February 20, 2013. 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. Please refer to the main Accounting for Financial Instruments project page for additional information related to all aspects of the Accounting for Financial Instruments project.

Due Process Documents
Decisions Reached at the Last Meeting
*Summary of Decisions Reached to Date
Board/Other Public Meeting Dates—Current
Project Plan
Contact Information

Due Process Documents

FASB Due Process Documents

On February 9, 2011, the FASB issued a Discussion Paper—Invitation to Comment—Selected Issues about Hedge Accounting to solicit input on the IASB’s Exposure Draft, Hedge Accounting, in order to improve, simplify, and converge the financial reporting requirements for hedging activities. The comment period ended on April 25, 2011.

Download the Invitation to Comment on Hedge Accounting  On May 26, 2010, the Board issued a proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities (proposed Update). The comment period ended on September 30, 2010. The proposed Update included some proposed guidance pertaining to hedge accounting.
The Board issued an Exposure Draft, Accounting for Hedging Activities, on June 6, 2008. The comment period ended on August 15, 2008.
IASB Due Process Documents

The IASB issued an Exposure Draft, Hedge Accounting, on December 9, 2010. The comment period ended on March 9, 2011. On September 7, 2012 the IASB posted a draft of the forthcoming general hedge accounting requirements that will be added to IFRS 9 Financial instruments.

Decisions Reached at the Last Meetings

August 24, 2011

The Board discussed the analysis of comment letters received on the February 9, 2011 FASB Invitation to Comment, Selected Issues about Hedge Accounting, which solicited input on the IASB’s Exposure Draft, Hedge Accounting. The meeting was educational and no decisions were reached.

*Summary of Decisions Reached to Date

The Board has not begun redeliberations on hedge accounting.

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.

May 2, 2012 Education Session—Discussions about the major themes that emerged during the 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—Outreach and comment letter summaries of the IASB’s Exposure Draft on hedge accounting.

Project Plan

At its January 31, 2007 meeting, the Board directed the staff to research (a) issues causing difficulties in the application of hedge accounting and (b) potential approaches to accounting for hedging activities.

Based on that research, the staff identified seven issues that cause significant difficulties in hedge accounting:
  1. Strict documentation requirements 
  2. Lack of clarity regarding when dedesignation and redesignation is necessary 
  3. Which hedged items or hedged transactions could be included in a group 
  4. How effectiveness should be assessed and what should be included in effectiveness testing 
  5. How cash flows and different aspects of the discount rate should be incorporated into the measurement of a hedged item to determine the change in value attributable to an individual hedged risk 
  6. How ineffectiveness should be measured in a cash flow hedge and what features should be included in a perfect hypothetical derivative 
  7. What the consequences should be for failing to meet the criteria for hedge accounting
On June 6, 2008, the Board issued an Exposure Draft, Accounting for Hedging Activities, which suggested some targeted changes to current hedge accounting guidance.

At the October 2008 joint FASB/IASB meeting, the FASB and IASB staffs presented summaries of the comments received on both the Discussion Paper on reducing complexity (see the background information on the main Accounting for financial instruments project page) and the Exposure Draft on hedging.
  • A majority of respondents to the Discussion Paper supported a significant change in the current requirements for reporting financial instruments. In addition, many of the user respondents expressed support for the Boards’ working together on a project to simplify the accounting for hedging activities, provided that the simplification would reduce the complexity of financial statement interpretation. 
  • A majority of respondents to the Exposure Draft were concerned that many of the proposed amendments would create further divergence between hedge accounting under U.S. GAAP and under IFRS; many of these respondents urged the Boards to work together on a joint project to improve hedge accounting, noting that the FASB’s hedge accounting project could be incorporated into the Boards’ research projects on reducing complexity.
The constituent feedback on this Exposure Draft was considered in developing the proposed hedge accounting guidance set forth in the Board’s May 2010 proposed Accounting Standards Update on financial instruments.

On May 26, 2010, the Board issued a proposed Accounting Standards Update, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities. The comment period ended on September 30, 2010. This proposed Update included some proposed changes to current hedge accounting guidance.

The IASB made tentative decisions about hedge accounting, as part of their separate deliberations, and issued an exposure document on hedge accounting in December 2010. The comment period ended on March 9, 2011. The model proposed in the IASB exposure draft would be significantly different from hedge accounting in current U.S. GAAP.

Click here to access the IASB's financial instruments project website for more information about the IASB project plan, the expected timing of exposure drafts and final standards, and a summary of the IASB's decisions reached to date.

On February 9, 2011, the FASB issued a Discussion Paper—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.

The FASB will consider the feedback received through comment letters and feedback received by the IASB during its redeliberations on hedge accounting. In addition, the FASB reviewed and analyzed constituent responses to Selected Issues about Hedge Accounting, in order to better understand constituent views on the IASB’s Exposure Draft.

In addition, the FASB staff expects to perform outreach with constituents, including users, to determine the best path forward for hedge accounting.

Contact Information

Steve Kane
Practice Fellow
smkane@fasb.org

Gautam Goswami
Practice Fellow
ggoswami@fasb.org


PROJECTS