FASB proposes hedge accounting standards update

The Financial Accounting Standards Board today proposed an Accounting Standards Update that would clarify guidance on hedge accounting and address issues that arose from the global reference rate reform initiative.

The proposed amendments would enable entities to apply hedge accounting to a greater number of highly effective economic hedges. 

In 2017, the FASB issued Accounting Standards Update No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," to better portray the economic results of an entity's risk management activities in its financial statements and to simplify the application of hedge accounting guidance.

But in 2021, stakeholders expressed concerns that the current guidance, in some cases, increases the risk of not being able to apply hedge accounting for otherwise-effective hedging relationships, resulting in less useful information for investors making decisions. Stakeholders also identified some areas of the guidance that required further updates to address the effects of reference rate reform on hedge accounting.

The FASB encourages stakeholders to review and provide input on the proposed ASU by Nov. 25. Information on how to submit comments is available at www.fasb.org.