Changes to hedge accounting
Defining Issues | August 2017
The amendments aim to reduce the cost and complexity of applying hedge accounting, and expand the types of relationships that qualify for hedge accounting.
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KPMG reports on ASU 2017-12, which amends ASC 815. The amendments aim to reduce the cost and complexity of applying hedge accounting, and expand the types of relationships that qualify for hedge accounting.
Applicability
ASU 2017-12
- Companies that elect to apply hedge accounting
Relevant dates
Mandatory effective dates and early adoption provisions:
Effective date | Public business entities | All other entities |
Annual periods – Fiscal years beginning after | December 15, 2018 | Dec. 15, 2019 |
Interim periods – In fiscal years beginning after | Dec. 15, 2018 | Dec. 15, 2020 |
Early adoption allowed? Yes.
Key Impacts:
This ASU:
- Eliminates the requirement to separately measure and report hedge ineffectiveness
- Requires all items that affect earnings to be presented in the same income statement line as the hedged item
- Provides new alternatives for applying hedge accounting to additional hedging strategies and measuring the hedged item in fair value hedges of interest rate risk
- Expects to reduce the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method, and reducing the risk of material error corrections if a company applies the shortcut method incorrectly
Report contents
- Applicability
- Facts and impacts
- Recognition and presentation
- New hedging strategies
- New accounting alternatives for fair value hedges of interest rate risk
- Reduced cost and complexity to apply hedge accounting
- Effective dates and transition
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Changes to hedge accounting
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