IASB Issues Final Draft for Hedge Accounting

Tuesday, September 11, 2012 Print Email

The IASB has issued a draft containing final accounting standards and have also revised the hedge accounting proposals, which should enable organizations to show their risk management related activities in a better way in the statements. Once the draft is published in the form of final exposure, the structure will become a part of the International Financial Reporting Standard 9, Financial Instruments.

The International Accounting Standards Boards has prepared the draft only for the purpose of reviewing it and there won’t be any feedback process during this particular stage. The IASB is planning the preparation of a final draft only after a period of ninety days.

The proposals in the draft have been created to offer a strong link between an entity’s rationales for hedging, risk management related activities and the effect on the financial statement of an entity.

Ernst & Young’s Global IFRS financial instruments leader, Tony Clifford stated that they are appreciative of the new proposals listed down by the IASB as far as hedge accounting approach is concerned since the proposals are based on principles, not very complex, better linked to an organization’s risk management related activities and are fit for application in all sectors of the industry.

A lot of improvements have been made to the current accounting standard, which also includes measures that focus on non-financial services organizations, which usually sign contracts to purchase or sell off non-finance related items containing numerous risk based components, like foreign exchange risk, basis risk and commodity price risk.

Clifford also stated that hedge accounting is now going to going to get permission for individual risk related components of non-finance related items, only if the organization can identify and measure the risk related component, which is hedged in reality separately. At present the International Accounting Standards Board is not looking for comments on the published draft and is making it available for the purpose of sharing information so that constituents get enough time to make get familiar with the draft. The draft is going to be available on IASB’s website till the beginning of the month of December 2012. The IASB is planning to finalize it only at the beginning of 2013.

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