A Deep Dive into Hedging

Power Plan across the water

Executive Summary

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

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