A Letter Submitted by EFRAG Pertaining to Macro Hedging

Saturday, March 30, 2013 Print Email

A letter was submitted by The European Financial Reporting Advisory Group (EFRAG) to the IASB indicating the findings of its study of the impact on macro hedge relationships of the substantial amendments proposed by the Review Draft (RD) 'IFRS 9 General hedge accounting' on existing macro hedge relationships under IAS 39, which was published by the IASB in September 2012. EFRAG suggests an option of either following IAS 39 or IFRS 9.

A field test was kicked off on the Review Draft general hedge accounting by EFRAG along with ANC, ASCG, FRC and OIC. IASB was informed the outcomes of the field test were imparted by EFRAG together with pronouncement that EFRAG would be undertaking an advance consultation regarding macro hedge accounting. Results of second consultation have also been communicated to IASB by EFRAG.

The input received from constituents in this supplementary consultation led to the following results: (taken from the letter submitted, link is given below)

  • Significant uncertainty exists as to whether existing IAS 39 compliant portfolio hedge accounting practices will continue to be possible under the Review Draft.
  • There is a significant risk that entities will be required to change their IAS 39 compliant portfolio hedge accounting practices twice.
  • The term ‘macro hedging' would need to be defined as part of the development of the discussion paper on macro hedging.
  • The respondents in the field test confirmed that the Review Draft introduces important improvements in the hedge accounting requirements.

Shttp://www.efrag.org/files/Comment%20Letters/Macro%20hedge%20accounting%20comment%20letters/Macro_hedging_final_letter_to_the_IASB_.pdf (For details)

numerous approaches has been now considered by EFRAG, including those recommended by constituents, which include how the aforementioned issues might be dealt with appropriately and reaching to a conclusion that would be most clear-cut and sensible way of ensuring that existing IAS 39 compliant portfolio hedging practices would not be affected by the Review Draft would be to provide entities a simple choice to either (1) retain IAS 39 hedge accounting for all of their hedges until either they decide to apply IFRS 9 irreversibly or the project on macro hedging is completed or (2) to adopt irreversibly the requirements of the Review Draft as drafted (including the exception in paragraph 6.1.3 on portfolio fair value hedges of interest rate risk).

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