FASB to Allow Choices in How Companies Shift to Hedging Rule

By Steve Burkholder

March 24 — Companies will have a choice of methods in how they would shift to planned hedge accounting changes aimed at streamlining complex rules focusing on derivatives used to counter risk of loss, the Financial Accounting Standards Board has decided.

Enterprises would be allowed to use either what is known as a “modified retrospective” transition approach or a method calling for a full retrospective, look-back in applying the future accounting standards update, FASB concluded in a unanimous vote March 23.

In addition, the board voted 5-2 to support “early adoption” of the planned ASU on hedging. Companies would be allowed to apply the new rules at the start of any fiscal period before the yet undecided effective date for the standard.

Proposal in Mid-Year

FASB expects to issue a draft standards update containing the hedge accounting changes sometime mid-year, a board spokesman told Bloomberg BNA March 24. The proposed ASU would then be open for comment.

The amendments to current rules on derivatives and hedging—some of FASB's most complicated standards—are expected to lead to a wider use of the special accounting prescriptions that accompany use of derivatives aimed at reducing risk.

The board also hopes to have the hedge accounting changes lead to a better reflection of companies' risk management practices, as board members and staff accountants have said.

In a key meeting last June 29, FASB made a series of tentative decisions that encompassed both financial instruments and nonfinancial transactions, such as purchases of ingredients and materials for production and operations by non-bank enterprises . The latter activities are known as nonfinancial hedges.

At its March 23 meeting, the board also voted on questions relating to footnote disclosures at transition to the planned ASU, transition elections at date of adoption and additional transition-related issues.

To contact the reporter on this story: Steve Burkholder in Norwalk, Conn., at sburkholder@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com

For More Information

A detailed board meeting handout on the hedging issues considered March 23 (item 3 of 4) is available at http://src.bna.com/dzP.

A summary of the board's March 23 board decisions is to be posted soon at http://src.bna.com/dzS,

A project update, including minutes of key meetings of June 29, 2015 and Oct. 7, 2015, is available at http://src.bna.com/dzK.