The FRC is looking for feedback on its proposed amendments to hedge accounting which are aimed at simplifying requirements and making them available for a wider range of hedging relationships.
The hedge accounting amendments are set out in Financial Reporting Exposure Draft 51: Draft Amendments to FRS 102 - Hedge Accounting. FRED 51 proposes to allow entities to apply hedge accounting where the hedged item, hedging instrument and hedging relationship meet certain broad conditions. The proposal simplifies hedge accounting, for example entities are not required to assess quantitatively whether a hedge is effective at the start of a hedging relationship nor are there any restrictions should an entity wish to discontinue hedge accounting. Illustrative examples contained in FRED 51 demonstrate how the requirements may be applied.
When the FRC issued the new UK GAAP in March this year it highlighted that it would review hedge accounting in the light of international developments. At the time it said that existing requirements were prescriptive and may unduly restrict the application of hedge accounting.
Melanie McLaren, executive director for Codes and Standards said that in developing the hedge accounting proposals, the FRC followed the same principles followed during the development of the new UK and Irish GAAP; basing them on international approaches but pragmatically tailored to the nature and circumstances of those businesses that may apply them.'The IASB's recently agreed principles for hedge accounting are the basis for this proposal, but we have taken a practical approach and made a number of simplifications. We were mindful that smaller, less complex businesses also enter into arrangements to hedge financial risks and hedge accounting should be as accessible as possible to all types of businesses, large and small,' said McLaren.
The amendments are proposed to be effective from the same date as the new UK GAAP, 1 January 2015.
The FRC invites comments on these proposals. The comment period closes on 14 February 2014.
FRED 51 can be found HERE
