FASB’s Changes to Hedge Accounting Standards Seen as Most Significant Since 1998

Mar 28th 2018
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In August 2017, the Financial Accounting Standards Board (FASB) issued a final Accounting Standards Update (ASU) designed to improve and simplify accounting rules around hedge accounting. One tax pro views the latest change on hedge accounting to be the most significant since 1998.

“Companies and investors alike have expressed overwhelming support for this long-awaited standard,” stated FASB Chairman Russell G. Golden. “Thanks to their input, the final ASU better aligns the accounting rule with a company’s risk management activities, better reflects the economic results of hedging in the financial statements, and simplifies hedge accounting treatment.”

According to the FASB, the new standard, ASU No. 2017-12Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, “refines and expands hedge accounting for both financial (e.g., interest rate) and commodity risks. Its provisions create more transparency around how economic results are presented, both on the face of the financial statements and in the footnotes, for investors and analysts.”

The new standard takes effect for fiscal years (and interim periods within those fiscal years) beginning after December 15, 2018, for public companies and for fiscal years beginning after December 15, 2019 (and interim periods for fiscal years beginning after December 15, 2020) for private companies, according to FASB. Early adoption is permitted in any interim period or fiscal years before the effective date of the standard.

Jon Howard, senior consultation partner in the Financial Instruments Group of Accounting Services in the Deloitte & Touche LLP (DTTL) national office, says the issuance of this new standard marks the most significant revision of the hedge accounting standard the accounting profession has seen since the issuance of FASB Statement No. 133 in 1998.

The new standard, Howard says, will make it simpler than ever for companies to achieve hedge accounting. More importantly, it’s easier to reduce volatility and enable steadier financial results. Public companies have already begun utilizing the new standard, Howard says, and now private companies are taking notice and want to understand what’s now entailed in applying hedge accounting.

AccountingWEB recently conducted a Q&A with Howard and Chris Monteilh, partner in the banking & securities practice at DTTL, to better understand the implications of this new standard and the impact it may have on small businesses and the CPAs who serve them.

AW: Can you please breakdown, in general, how this new standard revamps hedge accounting over the prior standards and practices?

Howard: The targeted improvements to hedge accounting eliminate the notion of measuring ineffectiveness.

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