The Financial Accounting Standards Board (FASB) has voted to proceed with a new accounting standard expected to improve and simplify accounting rules around hedge accounting. The final Accounting Standards Update (ASU) is expected to be published in August 2017.
“Over the past year, the FASB has received overwhelmingly positive feedback on the proposed changes to the hedge accounting model from both companies and investors,” noted FASB Chairman Russell G. Golden. “The resulting standard will better align the accounting rules with a company’s risk management activities, better reflect the economic results of hedging in the financial statements, and simplify hedge accounting treatment.”
Under the new standard, hedge accounting would be refined and expanded for both financial (e.g., interest rate) and commodity risks. The economic results would be presented in a more transparent way, both on the face of the financial statements and in the footnotes, for investors and analysts.
In September 2016, the FASB issued an Exposure Draft that generated 60 comment letters. Additionally, the FASB engaged in extensive stakeholder outreach, including numerous discussions with investors and other financial statement users; two public roundtables, which included preparers, auditors, regulators, and other stakeholders; and meetings with the Private Company Council to discuss private company hedge documentation issues.
The new standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, for public companies and for fiscal years beginning after December 15, 2019 (and interim periods for fiscal years beginning after December 15, 2020), for private companies. Early adoption will be permitted in any interim period or fiscal years before the effective date of the standard.
Established in 1973, the FASB is the independent, private-sector, not-for-profit organization based in Norwalk, Connecticut, that establishes financial accounting and reporting standards for public and private companies and not-for-profit organizations that follow Generally Accepted Accounting Principles (GAAP). The FASB is recognized by the Securities and Exchange Commission as the designated accounting standard setter for public companies. FASB standards are recognized as authoritative by many other organizations, including state Boards of Accountancy and the American Institute of CPAs (AICPA). The FASB develops and issues financial accounting standards through a transparent and inclusive process intended to promote financial reporting that provides useful information to investors and others who use financial reports. The Financial Accounting Foundation (FAF) supports and oversees the FASB. For more information, visit www.fasb.org.
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