Your SlideShare is downloading. ×
Summary of exposure draft on Hedge accounting proposals IAS 39
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×

Introducing the official SlideShare app

Stunning, full-screen experience for iPhone and Android

Text the download link to your phone

Standard text messaging rates apply

Summary of exposure draft on Hedge accounting proposals IAS 39

2,271
views

Published on

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.


0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
2,271
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
47
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. Hedge Accounting Proposals Summary of Exposure Draft under IAS 39 dated 9th Dec 2010 Compiled by CA. R. Venkata Subramani R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 2. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard To mitigate the recognition and measurement anomalies between To represent in the financial the accounting for hedged items statements the effect of managing Objective and to manage the timing of the exposures arising from particular recognition of gains or losses on risks that affect profit or loss derivative hedging instruments used to mitigate cash flow risk A non-derivative financial A non-derivative financial asset/liability measured at fair asset/liability measured at fair valueHedging instruments value through profit or loss is not through profit or loss may be eligible eligible for designation as a hedging for designation as a hedging instrument instrument  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 3. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard An aggregated exposure that is a An aggregated exposure that is a combination of an exposure and a combination of an exposure and a Hedged items derivative cannot be designated as derivative may be designated as a a hedged item hedged item Risk component separately Risk component separately identifiable and reliably identifiable and reliably measureable measureable may be designated asNon-financial items may be designated as the hedged the hedged item in a hedging item in a hedging relationship for relationship but only for financial non-financial items also items  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 4. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard Principle-based: The hedging Rule-based: The offset is within the relationship should meet theHedge effectiveness range of 80-125 % a hedge is objective of the hedge effectiveness testing effective and only then it qualifies assessment as laid down in the risk for hedge accounting management policy of the entity The assessment relates to On an ongoing basis an entity expectations about hedgeRetrospective testing should assess the effeictiveness of infectiveness and offsetting and the hedge by retrospective testing therefore is only forward looking. No retrospective testing  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 5. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard When a hedge effectiveness assessment objective fails an entity There is no such thing as can modify the hedge ratio to meet Rebalancing of a rebalancing. the objective of hedge effectivenesshedging relationship Modifying the hedge ratio is not assessment, so long as the risk permitted management objective remains unaltered Hedge accounting shall be If the effectiveness testing fails discontinued prospectively onlyDiscontinuing hedge either prospectively or when the hedging relationship accounting retrospectively hedge should be ceases to meet the qualifying criteria discontinued affecting the risk management activities  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 6. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard The gain or loss on the hedging instrument and the hedged item The effective and ineffective should be recognized in other Fair value hedges portions are taken to the profit and comprehensive income. The loss ineffective portion should be transferred to profit and loss The entire fair value of an option When designated, entity should including the time value is treated follow specific accountingTime value of options as held for trading and is accounted requirements for accounting the for at fair value through profit or time value of an option loss Extend the use of hedge accounting IAS 39 does not allow net positionsNet position hedging to net positions, improving the link to be hedged to risk management  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com
  • 7. Exposure Draft IAS 39 dated 9th December 2010 Parameter Existing IAS 39 Standard Proposed IFRS 9 Standard Under the current standards Three alternative approaches of entities using credit derivatives do accounting proposed where creditCredit derivatives as not achieve hedge accounting as it risk is hedged by credit derivativeshedging instrument is operationally difficult if not with separate qualification and impossible discontinuation criteria Option to either basis-adjust or toHedges resulting in Proposal withdraws the choice and route the hedge gain/loss directlynon-financial asset/ the hedge gain/loss should be in profit or loss from other liability subject to basis-adjustment comprehensive income  R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com © 2010 Calypso Confidential
  • 8. R. Venkata Subramani Email: rvsbell@gmail.com Websites: http://accountingforinvestments.com http://forhedgeaccounting.com R. Venkata Subramani Email: rvsbell@gmail.com http://accountingforinvestments.com