Industry Insights

Proposal Clarifies Hedge Accounting Post Novation

September 2015

On August 6, 2015, the Financial Accounting Standards Board (FASB) issued a proposal clarifying that a novation of a derivative contract doesn’t, in and of itself, require dedesigantion of a hedge accounting relationship. FASB concluded that when the only change to the derivative contract is the counterparty and all other hedge accounting criteria continue to be met (including creditworthiness), the hedge relationship is largely unchanged. For derivative contracts in a hedging relationship, entities no longer would have to dedesignate and redesignate contracts solely due to a novation. If adopted, this change will reduce diversity in practice. Comments are due October 5, 2015.

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