Objective:

The objective of this project is to make improvements to the hedge accounting guidance in Topic 815, Derivatives and Hedging, based on issues raised by stakeholders.

Background:

On August 28, 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which made targeted improvements to the hedge accounting model with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition to that main objective, the amendments in that Update made certain targeted improvements to simplify the application of hedge accounting guidance in current GAAP.

On the basis of questions raised by stakeholders on Update 2017-12, the Board is considering potential improvements to hedge accounting guidance in Topic 815 to address the following issues:

            Issue 1: Change in Hedged Risk in a Cash Flow Hedge—Potential improvements to
            clarify the Board’s intent related to the change in hedged risk guidance for cash flow
            hedges in paragraph 815-30-35-37A.

            Issue 2: Contractually Specified Components in Cash Flow Hedges of Nonfinancial
            Forecasted Transactions—Potential improvements to clarify the Board’s intent
            regarding the contractually specified component guidance, including the nature of
            agreements in which a contractually specified component may be evidenced and the
            applicability of the normal purchases and normal sales scope exception.

            Issue 3: Use of the Term Prepayable under the Shortcut Method—Potential
            improvements related to the use of the term prepayable under the shortcut method
            guidance. The use of that term under the shortcut method guidance differs from its
            use in the amended guidance in Update 2017-12 related to fair value hedges of
            interest rate risk.

            Issue 4: Foreign-Currency-Denominated Debt Instrument as Hedging Instrument and
            Hedged Item—Potential improvements to the recognition and presentation of
            hedging relationships in which a foreign-currency-dominated debt instrument is
            simultaneously designated as both the hedging instrument in a net investment hedge
            and the hedged item in a fair value hedge of interest rate risk (a dual hedge).

In addition, on the basis of feedback on the 2021 Invitation to Comment (ITC), Agenda Consultation, the Board decided at the February 1, 2023 Board meeting to consider potential improvements to the hedge accounting guidance affected by the expected cessation of LIBOR to address the following issues:

            Issue 5: Shared Risk Assessment in Cash Flow Hedges of Loan Portfolios—
            Potential improvements to clarify application of the shared risk assessment guidance
            in cash flow hedges of forecasted transactions to address existing uncertainty and
            diversity in practice.

            Issue 6: Written Options as Hedging Instruments—Potential improvements to permit
            the designation as a hedging instrument of derivatives that result from combining a
            written option and any other non-option derivative instrument.

Exposure Draft:

On November 12, 2019, the Board issued a proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Codification Improvements to Hedge Accounting. 

• Download the proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Codification Improvements to Hedge Accounting
• Read comment letters on the proposed Accounting Standards Update.

• Read the FASB in Focus, which summarizes the amendments in the proposed Update.

Decisions Reached at Last Meeting (February 1, 2023):

Topic 815—Hedge Accounting Improvements (formerly known as Codification Improvements—Hedge Accounting). The Board discussed the issues in the Hedge Accounting—Phase 2 research project identified through agenda requests, feedback on the June 2021 Invitation to Comment (ITC), Agenda Consultation, past comment letters, and stakeholder outreach.

The Board decided to add the following issues to the scope of the project:

1. Shared risk assessment in cash flow hedges of loan portfolios
2. Written options as hedging instruments.

The Board also considered, but decided not to add, the following issues to the scope of the project:

1. Net investment hedges—float-for-float cross-currency swaps
2. Perfectly effective assessment methods and LIBOR cessation
3. Basis spreads across various new interest rates
4. Foreign-currency-denominated debt issuance
5. Cross-border business acquisitions as hedged forecasted transactions
6. Hedge of translation risk
7. Forecasted intra-entity transactions
8. Dividends on equity classified shares as hedged items
9. Expansion of allowable excluded components
10. Shortcut method for forward-starting swaps
11. Forecasted issuance of debt—hedge of proceeds versus a series of coupons
12. Fair value hedges of interest rate risk of portfolios of liabilities using the portfolio layer method
13. Interest rate risk of held-to-maturity debt securities
14. Inflation risk of debt securities as hedged risk
15. Benchmark component fair value hedges of nonfinancial assets and liabilities
16. Equity method investments as hedged items
17. Nonderivatives as hedging instruments
18. Disclosures.

Tentative Board Decisions Reached to Date (as of February 1, 2023):

A summary of the Board’s tentative decisions reached to date can be found here.

The Board meeting minutes, handouts, and videos are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final standard. The following are links to the minutes for each meeting. To view Board meetings and handouts from the past 90 days, click here.

February 1, 2023*	Board Meeting—Discussion on hedging related issues and other issues raised by stakeholders and refinements to the scope criteria of the Topic 815—Hedge Accounting Improvements project.
June 29, 2022	Board Meeting—Discussion on stakeholder feedback received on Topic 815, Derivatives and Hedging, in response to the June 2021 Invitation to Comment, Agenda Consultation.
July 31, 2019	Board Meeting—Discussion on the proposed amendments to the Codification resulting from stakeholder feedback on Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
May 8, 2019	Board Meeting—Discussion on the proposed amendments to the Codification resulting from stakeholder feedback on Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
March 28, 2018	Board Meeting—Discussion on the change in hedged risk in cash flow hedges.
February 14, 2018	Board Meeting—Discussion on the use of the term prepayable under the shortcut method.

The Board will continue deliberations at a future meeting.

Chase Hodges
Practice Fellow
chodges@fasb.org

Kenjiro Matsuo
Project Manager
kmatsuo@fasb.org
 
Rosemarie Sangiuolo
Senior Project Advisor
rsangiuolo@fasb.org

Lindsey Hoyer
Postgraduate Technical Assistant
lhoyer@fasb.org

Luke Kennedy
Postgraduate Technical Assistant
lkennedy@fasb.org