In a welcome regulatory move, the US FASB has voted to modernize and simplify hedge accounting treatment over the coming year.
The Financial Accounting Standards FASB voted June 29 to simplify complex hedge accounting prescriptions and lower some hurdles on qualifying for the business-friendly form of reporting. At the same time, the board sought to hew to the basic principles and constraints underlying the use of the accounting blueprint in which derivatives play a key role. A main aim of FASB is to have hedge accounting rules “more closely mirror” companies’ risk management practices. The proposed changes by FASB are expected to have the deepest impacts on what are known as nonfinancial component hedges by corporations and, in the realm of financial instruments, on hedges of variable-rate instruments and on total coupon cash flows stemming from benchmark interest rates. FASB hopes to issue by Dec. 31 a detailed exposure draft reflecting its decisions on changing the hedge accounting model.