The IASB's alternative solution applies a fix to the way the IFRS 9 amendments, issued last September, treated the element of currency basis in forward FX pricing, which would have left companies exposed to significant profit and loss volatility and would have created misalignment between their risk-management strategies and accounting.

According to Reval, in practical terms, the decision this week means that most companies will elect to designate only the spot risk of their currency hedging. This will minimize P L volatility in most cases, but it increases complexity as both the hedged and excluded components must be monitored separately.

"The cornerstone of this week's decision was the IASB's acceptance that currency basis reflects a 'cost of hedging' in forward FX pricing, much like premiums that are paid for options," Blaik Wilson, Chairman of Reval's Hedge Accounting Technical Taskforce, explained. "This decision means that the way companies designate and process currency hedges will likely be very different between IFRS 9 and IAS 39. Organisations need to start thinking now about how they will adapt to that change."

The final standard is expected to be published in the first half of this year, with early adoption available immediately from that point.