FASB published a summary of the tentative decisions taken at its Board meeting in May 2019. Among other topics, the Board discussed proposed amendments to the Codification resulting from stakeholder feedback on Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
The Board decided to amend the guidance in Topic 815 for the following topics:
- Change in hedged risk in a cash flow hedge. The Board decided that when hindsight is applied to identify hedged transactions with a revised hedged risk that would not have achieved a highly effective hedging relationship, amounts deferred in accumulated other comprehensive income (AOCI) would remain in AOCI until the associated forecasted transaction affects earnings and amounts reclassified from AOCI to earnings would be recognized in the same income statement line item as the earnings effect of the hedged forecasted transaction.
- Contractually specified components. The Board decided to clarify the nature of agreements in which a contractually specified component (CSC) may be evidenced, with an emphasis on the requirement that the CSC would need to be explicitly referenced in those agreements.
- Dual fair value and net investment hedge (Dual Hedge Relationship). For dual hedge relationships in which a debt instrument is both a hedging instrument in a net investment hedge in a foreign entity and a hedged item in a fair value hedge of interest rate risk, the Board decided to require an exception to the recognition and presentation requirements established by the amendments in Update 2017-12. An entity would be required to exclude the foreign-currency-denominated debt’s fair value hedge basis adjustment from the effectiveness assessment of the net investment hedge. The Board also decided to clarify that this guidance could not be applied by analogy to any fact pattern outside a dual hedge relationship.
- Use of the term prepayable under the shortcut method. The Board decided to clarify that the intended meaning of the term prepayable under the shortcut method guidance differs from that under the amended guidance in Update 2017-12 by replacing the term prepayable or prepayment with early settlement and replacing the term prepaid with settled early in the shortcut method guidance.
- Transition guidance. The Board decided on the transition provisions that would apply for entities that have adopted the amendments in Update 2017-12 before the issuance date of a final Accounting Standards Update. The Board also decided on the transition disclosures in the period that the entity adopts these amendments.
Keywords: Americas, US, Banking, Accounting, Tentative Decisions, Accounting Standards Update, Topic 815, Derivatives and Hedging, FASB
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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