Industry Insights

Easier Hedge Accounting Rules on the Horizon

September 2016

Executive Summary

The Financial Accounting Standards Board recently issued a proposal updating hedge accounting guidance. The goal is to make it easier to qualify and stay qualified for hedge accounting treatment and improve alignment with an entity’s risk management strategy. Notable changes include:

  • Expanding the use of component hedging for both nonfinancial and financial risks
  • Refining the measurement techniques for hedged items in fair value hedges of benchmark interest rate risk
  • Eliminating the separate measurement and reporting of hedge ineffectiveness
  • Requiring for cash flow and net investment hedges that all changes in fair value of the hedging instrument included in the hedging relationship be deferred in other comprehensive income and released to the income statement in the period(s) when the hedged item affects earnings
  • Changes in the fair value of hedging instruments would be recorded in the same income statement line item as the earnings effect of the hedged item
  • New disclosures to highlight the effect of hedge accounting on individual income statement line items

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