FASB proposes clarifying hedge accounting standard

Certain sections of FASB’s new hedge accounting standard would be clarified under a proposal the board issued Tuesday.

FASB made targeted changes to its standard for hedge accounting in 2017 in the hopes of making hedge accounting simpler for preparers and easier for financial statement users to understand.

The proposed Accounting Standards Update (ASU) issued Tuesday primarily addresses the change in hedged risk in a cash flow hedge. The standard issued in 2017 allowed the risk causing variability in cash flows of the forecasted transaction to change (for example, from one variable interest rate to another, or from one commodity index to a different index for the same commodity) if certain criteria are met.

Under the proposal, FASB would clarify whether that change can happen both prospectively (before the forecasted transaction occurs) and retrospectively (after the transaction occurs). The proposal also addresses how hedge accounting guidance should be applied if the change can happen both prospectively and retrospectively.

“During our outreach to help stakeholders understand and implement the new hedging standard, we identified areas of the guidance that could be better aligned with the standard’s stated objectives,” FASB Chairman Russell Golden said in a news release. “The proposed ASU would address these areas and help promote a better, more consistent application of the standard.”

Comments can be submitted by Jan. 13 at FASB’s website.

— Ken Tysiac (Kenneth.Tysiac@aicpa-cima.com) is the JofA‘s editorial director.