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.
Keywords: Americas, US, Banking, Accounting, Accounting Standards Update, Derivatives and Hedging, Hedge Accounting, Topic 815, FASB, ISDA
Previous ArticleIMF Reports on 2019 Article IV Consultation with Finland and Estonia
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.