AICPA's FinREC Responds to FASB's Proposed Hedging Improvements

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The American Institute of CPAs’ Financial Reporting Executive Committee (FinREC) submitted comments to the Financial Accounting Standards Board regarding FASB’s targeted improvements to accounting for hedging activities.

The letter, in response to FASB’s Proposed Accounting Standards Update, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” noted: “The current hedging standard can be challenging for reporting entities to apply properly. Achieving hedge accounting for financial and nonfinancial risks under the current guidance has also proven to be very challenging.” The letter was signed by FinREC chairman James Dolinar and Financial Instruments Task Force chairwoman Linda Bergen.

In a proposed ASU issued in 2010, FASB attempted to address constituents’ concerns. In a Sept. 10, 2010, comment letter, FinREC responded with support for provisions that:

  • Would have continued to allow hedge designation by type of risk;
  • Allowed hedges to be reasonably effective rather than highly effective; and
  • Also would have permitted qualitative assessments to evaluate effectiveness, rather than only quantitative assessments.

According to FinREC’s recent letter, “We are pleased that the current proposed ASU also includes provisions to address many of these concerns. Overall, we believe the proposal will improve and simplify the hedge accounting model, will better reflect the economics of risk management activities and will ease hedge documentation requirements.” 
A PDF of the full comment letter can be accessed here

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