FRC proposes amendments to hedge accounting

HEDGE ACCOUNTING will be made available for a wider range of hedging relationships, under new proposals outlined by the FRC.

The draft amendments will allow entities to use hedge accounting where the hedging instruments, hedged item and hedging relationship meet certain broad conditions.

Entities will also be allowed to apply hedge accounting when this reflects their economic and risk management strategies and to use concepts and language that are consistent with those included IFRS 9, the IASB’s standard that includes hedge accounting.

Melanie McLaren, FRC executive director, codes and standards said: “In developing our hedge accounting proposals, we have followed the same principles as in developing the new UK and Irish GAAP; basing them on international approaches but pragmatically tailored to the nature and circumstances of those businesses that may apply them.

“The IASB’s recently agreed principles for hedge accounting are the basis for this proposal, but we have taken a practical approach and made a number of simplifications. We were mindful that smaller, less complex businesses also enter into arrangements to hedge financial risks and hedge accounting should be as accessible as possible to all types of businesses, large and small.”

The amendments are proposed to be effective from the same date as the new UK GAAP, 1 January 2015.

The FRC invites comments on these proposals. The comment period closes on 14 February 2014.

The consultation document can be accessed here.

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