Early adoption of new hedge accounting rules may seem attractive, but company management needs to know all the facts before choosing a course of action and the best time for adoption.
The Financial Accounting Standards Board’s release of updated rules makes targeted but substantial improvements:
- Expanding component hedging to nonfinancial risks for preparers to more accurately present—and users to better understand—an entity’s risk exposures and risk management activities
- Eliminating the separate measurement and presentation of hedge ineffectiveness that has resulted in complexity in the financial reporting process and hindered the decision usefulness of reported information
- Aligning the financial reporting for hedges of interest rate risk with the economic results of those risk management activities
- Reducing the costs and complexity of monitoring the effectiveness of a hedging relationship by allowing more qualitative assessments
- Allowing more time for the preparation of hedge documentation for preparers that elect hedge accounting