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Accounting for Financial InstrumentsHedge Accounting

Last updated on July 31, 2017. Please refer to theCurrent Technical Planfor information about the expected release dates of exposure documents and final standards.

(Updated sections are indicated with an asterisk *)

This project update summarizes the project activities and decisions of the IASB and the FASB (Boards). It was prepared by the staff and is for the information and convenience of their constituents. All decisions of the Boards are tentative, may change at future Board meetings, and do not change current accounting and reporting requirements. Decisions of the Boards become final only after extensive due process.

Board/Other Public Meeting DatesCurrent

This project addresses issues related to hedge accounting for financial instruments and non-financial items. The objective of this project is to make targeted improvements to the hedge accounting model based on the feedback received from preparers, auditors, users and other stakeholders. The Board will consider opportunities to align with IFRS 9

Click herefor the project objective and background information on the overall Accounting for Financial Instruments project.

On September 8, 2016, the FASB issued proposed Accounting Standards Update,

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

. The comment letter period ended on November 22, 2016.

Downloadthe September 8, 2016 proposed Accounting Standards Update,

Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities

Read theFASB in Focuswhich summarizes the proposed Accounting Standards Update.

Read thepress releaseon the proposed Accounting Standards Update.

Readcomment letterson the proposed Accounting Standards Update.

Read afeedback summaryon the proposed Accounting Standards Update.

On February 9, 2011, the FASB issued an Invitation to Comment,

to solicit input on the IASBs Exposure Draft,

. The comment period ended on April 25, 2011.

Download theInvitation to Comment on Hedge Accounting.

Read theFASB news releaseintroducing the Invitation to Comment on hedge accounting.

Readcomment letterson the Invitation to Comment on hedge accounting.

Read acomment letter summaryon the Invitation to Comment on hedge accounting.

On May 26, 2010, the FASB issued one comprehensive proposed Accounting Standards Update,

Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging ActivitiesFinancial Instruments (Topic 825) and Derivatives and Hedging (Topic 815)

. The comment period ended on September 30, 2010.

Download theProposed Accounting for Financial Instruments Update.

Read thenews releaseintroducing the proposed Accounting Standards Update.

Read theFASB in Focus, which summarizes the proposed Accounting Standards Update.

Listen to apodcastin which former FASB Chairman Robert Herz discusses the proposed Accounting Standards Update.

Read theFrequently Asked Questionsdocument which clarifies the proposed guidance by answering common questions received through outreach efforts.

Readcomment letterson the proposed Accounting Standards Update.

Read thefeedback summaryon the proposed Accounting Standards Update.

Read theSummary of Feedback Received through Meetings and Teleconferences with Users of Financial Statementson the proposed Accounting Standards Update.

On June 6, 2008, the FASB issued an Exposure Draft,

. The comment period ended on August 15, 2008.

Accounting for Hedging Activities Exposure Draft

Accounting for Hedging Activities Comment Letters

Accounting for Hedging Activities Comment Letter Summary

Decisions Reached at the Last Meeting (JUNE 7, 2017)

Sweep issues arising from drafting and external review

Additional transition issues arising from redeliberations and external review

Substantive drafting changes to be made to the final Update

Analysis of costs, benefits, and complexities of decisions reached to date on hedge accounting and permission to ballot a final Accounting Standards Update.

Sweep Issue Arising from Drafting and External Review

To expand the scope of the private company hedge documentation timing decision to not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market).

To expand the scope of the amortization approach for amounts excluded from the assessment of effectiveness to hedges of a net investment in a foreign operation.

Additional Transition Issues Arising from Redeliberations and External Review

An entity is not required to assess similar hedges in a similar manner when comparing similar hedging relationships executed before and after the adoption date for any of the following:

For (1) hedging relationships executed before the adoption date designated under the shortcut method for which the hedge documentation was not amended to specify a long-haul method that would be employed if use of the shortcut method was not or no longer is appropriate and (2) hedging relationships executed after the adoption date designated under the shortcut method for which a long-haul method is specified if use of the shortcut method was not or no longer is appropriate.

For (1) hedging relationships executed before the adoption date for which the hedged risk was not amended to a contractually specified component or a contractually specified interest rate and (2) hedging relationships executed after the adoption date for which the hedged risk is the variability in cash flows attributable to changes in a contractually specified component or a contractually specified interest rate.

For (1) hedging relationships executed before the adoption date for which amounts excluded from the assessment of effectiveness are recorded in earnings under a mark-to-market approach and (2) hedging relationships executed after the adoption date for which amounts excluded from the assessment of effectiveness are recorded in earnings under an amortization approach.

An entity will not be required to assess similar hedges in a similar manner when an entity assesses effectiveness on a qualitative basis, as proposed in the proposed Update. Qualitative assessments may be performed on a hedge-by-hedge basis.

An entity may elect in transition to transfer financial assets classified as held-to-maturity that qualify as hedged items under the last of layer method to the available-for-sale category.

Cross-currency basis spreads may be excluded from the assessment of effectiveness for existing fair value hedging relationships as of the date of adoption.

Private companies that are not financial institutions and not-for-profit entities (except for not-for-profit entities that have issued, or are a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market) must make transition elections before the next set of interim (if applicable) or annual financial statements is available to be issued. All other entities must make those elections before the first effectiveness testing date after adoption.

For fair value hedges of interest rate risk existing as of the date of adoption for which an entity modifies the measurement of the hedged item to the benchmark rate component cash flows, an entity may elect to partially dedesignate a portion of the hedged item and reclassify the basis adjustment associated with the portion of the dedesignated hedged item to the opening balance of retained earnings.

Substantive Drafting Changes to Be Made to the Final Update

The Board decided that no additional analysis or information was required with regard to the substantive drafting amendments to be made to the final Update.

The Board decided that the effective date for public business entities will be for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

The Board also decided that the effective date for entities other than public business entities will be for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

The Board decided to permit early adoption in any interim or annual period upon issuance of the final Update.

Analysis of Costs, Benefits, and Complexities of Decisions Reached to Date

The Board decided that it has received sufficient information and analysis to make an informed decision on the issues presented. The Board also concluded that the benefits of the amendments justify the related costs.

Permission to Ballot a Final Accounting Standards Update

The Board directed the staff to draft a final Accounting Standards Update for vote by written ballot.

The Board decided that a transition resource group was not necessary to address implementation questions.

Tentative Board Decisions Reached to Date (As of JUNE 7, 2017)Tentative Board Decisions Reached to Date During Deliberations.

Next StepsThe staff is in the process of drafting a final Accounting Standards Update, which is expected to be issued in the third quarter of 2017.

Board/Other Public Meeting DatesCurrentThe Board meeting minutes are provided for the information and convenience of constituents who want to follow the Boards deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard.

Board MeetingDecisions regarding sweep issues, transition issues, effective dates, cost-benefit analysis, permission to ballot, and whether a TRG should be formed

Board MeetingDecisions regarding cross currency basis spreads and the recognition of amounts excluded from assessments of effectiveness

Board MeetingDecisions regarding the market yield test for use of benchmark coupon cash flows and the last of layer approach for fair value hedges of interest rate risk of prepayable instruments.

Board MeetingDecisions regarding returning to qualitative assessments of hedge effectiveness after performing a quantitative assessment of hedge effectiveness and changes to the requirements for private company hedge documentation.

Board MeetingDiscussion about the feedback received on September 8, 2016 proposed Accounting Standards Update, and discuss items for affirmation and potential items for redeliberation based on the feedback received on the proposed Update.

Board MeetingDecisions regarding sweep issues, cost and benefits, and permission to ballot.

Board MeetingDecisions regarding transition alternatives

Board MeetingDecisions regarding additional hedge documentation relief for private companies.

Board MeetingDecisions regarding net investment hedges, the treatment of excluded components for cash flow hedges and net investment hedges, the use of the total coupon cash flows in fair value hedges, sub-benchmark hedges, and contract features that limit exposure in cash flow hedges of nonfinancial items.

Board MeetingDecisions regarding the qualifying threshold, component hedging for nonfinancial items, benchmark interest rates, application issues related to fair value hedges of interest rate risk, the shortcut method, and presentation and disclosures.

Board MeetingDiscussions about hedges of benchmark interest rate risk and overall changes to the hedge accounting model.

Board MeetingDiscussions about the presentation of hedge ineffectiveness, disclosures related to cumulative-basis adjustments in fair value hedges, tabular disclosures about the effect of hedge accounting on statement of financial performance line items, and hedge documentation requirements.

Board MeetingDiscussions about selected benchmark interest rate hedging issues, shortcut and critical terms match methods, and the effectiveness threshold for hedges of financial assets and liabilities.

Board MeetingDiscussions about the presentation of hedge ineffectiveness, defining a reasonably effective threshold, fair value hedges of nonfinancial items, disclosures for hedges of nonfinancial items, and qualitative effectiveness testing.

Board MeetingDiscussions about the effectiveness threshold and qualitative versus quantitative testing of hedge effectiveness, as well as component hedging for nonfinancial items.

Board MeetingProject added to the technical agenda

Board MeetingDiscussions about feedback received on the hedge accounting portion of the Boards May 2010 proposed Accounting Standards Update. The Board also discussed their preferences regarding the approach in carrying out the hedge accounting project.

Board MeetingDecision to perform research on the scope of the hedge accounting phase of the project

Education SessionDiscussions about the major themes that emerged through outreach efforts with financial statement users regarding derivatives and hedge accounting.

Education SessionDiscussions about the IASBs hedge accounting model, presented by the IASB staff. Clickherefor the slides used in the IASBs presentation.

Board MeetingDiscussions about the comments received on the Invitation to Comment,

Joint Board MeetingDiscussions about the outreach and comment letter summaries on the IASBs Exposure Draft.

Click herefor minutes of public meetings on the accounting for financial instruments project that were held related to the issuance of the May 2010 proposed Update on financial instruments.

Revenue Recognition Transition Resource Group

Exposure Documents & Public Comment Documents

Comparability in International Accounting Standards

FASB Special Report: The Framework of Financial Accounting Concepts and Standards

Revenue Recognition Transition Resource Group

Exposure Documents & Public Comment Documents

Comparability in International Accounting Standards

FASB Special Report: The Framework of Financial Accounting Concepts and Standards