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FASB spotlights hedge accounting

Thursday 10 February 2011 - by Will Henley

Proposals to reform worldwide hedge accounting rules are set to be scrutinised by the US Financial Accounting Standards Board, under a public consultation launched on Wednesday.

The move follows the announcement of plans by the International Accounting Standards Board to revolutionise hedge accounting for financial instruments by brushing aside existing rules and introducing a set of core principles instead.

New FASB chairman Leslie Seidman, who took over the role in December, admitted that there were "differences" in opinion between the US and global bodies, as she launched a discussion paper on the issue.

"The FASB is issuing this discussion paper to determine whether our constituents think the IASB's proposed changes would improve the accounting for hedging activities," stated FASB chairman Leslie Seidman.

"The information received during the comment period will be helpful to both the FASB and the IASB as we deliberate issues pertaining to hedge accounting."


In May last year, the IASB announced its suggested changes to simplify standards for reporting of financial instruments.

In December, the IASB formally launched an "exposure draft" on hedge accounting, which seeks to align accounting more closely with risk management.

As well as adopting a principles-based approach and aligning hedge accounting more closely with risk management when hedging financial and non-financial risk exposures, the proposals also include new presentation and disclosure requirements.

Writing in GFS News last month, Stephen Cooper, member of the International Accounting Standards Board, said that the changes were necessary.

"Investors should find the application of the new hedge accounting model more logical, and they should also find that its effects are more transparent and easier to understand," Cooper said.


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