ISDA Responds to FASB Proposal on Derivatives and Hedging Standard
ISDA published its response to the FASB’s proposed Accounting Standards Update on derivatives and hedging (Topic 815). In its response, ISDA supports the efforts of FASB to clarify and improve the US Generally Accepted Accounting Principles (GAAP) applicable to hedging activities. However, the ISDA response suggests the need for improvements via a phase-two hedge improvements project, including changes related to the hedged risk in a cash flow hedge.
While the FASB efforts to provide clarification on certain matters in the proposed Update is appreciated, ISDA encourages FASB to add a phase-two targeted hedge accounting improvements project to its agenda. ISDA believes that such project could address certain practice issues and other matters that remain unresolved or have arisen since the issuance of Accounting Standards Update 2017-12 on targeted improvements to accounting for hedging activities under Topic 815, which would be more than technical corrections.
Additionally, ISDA believes certain changes are needed for with respect to Issue 1 in the proposed Accounting Standards Update, which will provide clarification for preparers for certain topics included in Accounting Standards Update No. 2017-12. The amendments in this proposed Update have been classified under four issues.
- Issue 1 is related to changes in hedged risk in a cash flow hedge.
- Issue 2 is related to contractually specified components in cash flow hedges of non-financial forecasted transactions.
- Issue 3 is related to foreign-currency-denominated debt instrument as hedging instrument and hedged item (Dual Hedge).
- Issue 4 is related to using the term prepayable under the shortcut method.
ISDA agrees with the proposed Update on Issues 2, 3, and 4 and does not have any specific comments in relation to those Issues. With respect to Issue 1, the ISDA members believe certain changes to the proposed Update will make it more operable, including an improvement to the existing Topic 815 guidance related to a change in hedged risk within a designated hedging relationship.
Related Links
Keywords: Americas, US, Banking, Accounting, Accounting Standards Update, Derivatives and Hedging, Hedge Accounting, Topic 815, FASB, ISDA
Previous Article
IMF Reports on 2019 Article IV Consultation with Finland and EstoniaRelated Articles
EBA Analyzes Impact of Unwind Mechanism of Liquidity Coverage Ratio
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
ECB Outlines Views on Possible Changes to AnaCredit Rule and TLTROs
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB Begins First Phase of Post-Implementation Review of IFRS 9
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA Benchmarks National Insolvency Frameworks Across EU
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB Reports Assess Impact of Pandemic on Financial Stability
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ Consults on Implementation of Capital Review Changes
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
IASB Announces Andreas Barckow as the New Chair from July 2021
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA Consults on Capital Rules for Bank Equity Investments in Funds
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB Supports Extension of Macro-Prudential Measure by Swedish FSA
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).
