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Hedge accounting brought in line with corporate risk management

The US accounting standards body has released an update to its standards on hedge accounting to enable companies to better represent the economic results of their hedging strategies in their financial statements. The update – Derivatives and Hedging (Topic 815)/Targeted Improvements to Accounting for Hedging Activities – has been released by the Financial Accounting Standards Board (FASB) and will apply to any organisation that applies hedge accounting in accordance with current generally accepted accounting principles (GAAP). The update seeks to bring financial reporting of hedging activity more in line with the organisation's risk management activities. It also seeks to clarify the effect of hedge accounting on an entity’s reported results. The update will come into effect for public companies in 2019 and private companies in 2020.

Accounting Today reports that the FASB is allowing companies to adopt the changes before those dates. The vice chairman of the FASB, James Kroeker, told Accounting Today – which has published a very in-depth article on what these changes mean for corporates – that there are several changes contained in the update: “One is changes to the hedge accounting model that allow for greater alignment between risk management strategies in the financial reporting or the accounting. Those are in a few areas, one as it relates to really putting on equal footing the financial product hedge accounting model with the nonfinancial. It’s opening up nonfinancial hedging to components, so if there’s a contractually specified component, you’re able to more closely align the accounting with the risk management strategies there.”

For more detail on the changes, see the full text of the FASB update.

This item appears in the following sections:
Control & Compliance in Operations
% Rate Hedging & Risk Management
FX Hedging & Risk Management

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