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Summary of exposure draft on Hedge accounting proposals IAS 39

by Author of two volumes of Accounting for Investments Book at Northern Trust on Dec 28, 2010

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We are all aware that IFRS is principle based while US GAAP is rule based. However, the hedge accounting portions of IAS 39 do contain certain rule based criteria for testing hedge effectiveness. ...

We are all aware that IFRS is principle based while US GAAP is rule based. However, the hedge accounting portions of IAS 39 do contain certain rule based criteria for testing hedge effectiveness. The
proposals in the ED seeks to move away from this by making this principle based.

The main objective of 'hedge accounting' under the current standards is to mitigate the recognition and measurement anomalies between the accounting for hedged items and to manage the timing of the
recognition of gains or losses on derivative hedging instruments used to mitigate cash flow risk. As per the ED the objective is to represent in the financial statements the effect of managing exposures
arising from particular risks that affect profit or loss.

Till now 'hedge accounting' is considered to be a privilege and the entity is supposed to earn such privilege by fulfilling several rigourous conditions. Considering the fact that the new proposal are aimed at the entities to show the effect of managing risks in the financial statements, it will not be surprising if this is made
mandatory soon.

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Summary of exposure draft on Hedge accounting proposals IAS 39 Summary of exposure draft on Hedge accounting proposals IAS 39 Presentation Transcript