Monthly Archives: November 2014

Heads up on Hedging: Hedge Accounting Back on the Agenda!

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When the FASB created new hedge accounting requirements with the adoption of SFAS 133 (long ago…) many companies found that the burden of the new requirements and the technical complexity they presented made it simply impractical to use hedge accounting.

As a result, in many cases, the economics of a company’s risk management activities was not conveyed in their financial statements.

The FASB and IASB’s path towards new, and hopefully better, accounting for hedging activities has been almost as winding and twisting as actually trying to qualify for hedge accounting. Both boards originally put hedge accounting in the overall financial instruments project. When the complexity of this project increased, both boards moved hedge accounting to a back burner, and eventually it fell by the wayside for the FASB while the IASB did revise their hedge guidance.

The FASB met on November 5 to vote on whether to move this project to the active project agenda. The board materials included the following list of areas where changes may be considered:

      • Hedge effectiveness requirements
      • Component hedging for financial and non-financial hedged items
        (A potentially great way to match risk management and accounting)
      • Elimination of the short-cut and critical terms effectiveness assessment tools
        (New effectiveness requirements would make them obsolete)
      • Voluntary de-designation of a hedging relationship
        (Should this opportunity be removed)?
      • Recording ineffectiveness for under-effective cash flow hedges(How to measure this issue in the income statement)
      • Adjusting the benchmark interest rates
      • Simplifying hedge accounting documentation requirements
        (Oh please do this!)
      • Reviewing disclosure requirements

Hopefully the Board may move towards some targeted changes and improvements to hedge accounting in a direct fashion, which would be welcome changes for all of us using hedge accounting, and which may make it feasible for some of us who do not use hedge accounting because of the burdensome requirements to reconsider this decision, and get a conceptually better accounting outcome for our risk management activities.

When-fore art thou revenue recognition?

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With every revenue recognition workshop we have presented to date participants have had strong opinions on the new standard’s implementation date. (For public companies the new standard must be implemented for periods beginning after December 15, 2016, years after December 15, 2017 for non-public companies.)

The FASB and IASB put this date into the public discussion well before the final standard was issued. That said, as soon as the final standard was published late last May constituents began voicing concerns about the feasibility of meeting this date. (Yes, given the protracted timing building new accounting standards many of us still don’t pay attention to the standard setting process until the new standard is final!)

In June and July, after feedback from constituents about the effective date began to flow in, the board indicated that they would be listening and be ready to react to this feedback.

At the Transition Resource Group meeting on October 31, 2015, it became clear that, as they always do, the board is listening.   At this meeting of the FASB Vice Chair Jim Kroeker announced that the Board and the FASB Staff will conduct additional outreach with both public and private companies over the next several months to gauge their progress in preparing to implement the new revenue recognition standard.

Mr. Kroeker emphasized that the Board is considering whether or not to defer the effective date of the new revenue standard. He also said that a decision will be made no later than the second quarter of 2015.

You can check out the archived webcast of the entire TRG meeting at:

www.fasb.org/cs/ContentServer?c=Page&pagename=FASB%2FPage%2FSectionPage&cid=1176164066683

As always, your thoughts and comments are appreciated!

Do you think the date should be deferred? Lets us know, and we will summarize everyone’s thoughts!