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Private Companies Receive Exemptions from Hedge Accounting Document Requirements

The Financial Accounting Standards Board’s (“FASB”) proposed changes to hedge accounting guidance will offer private companies a break from documentation requirements. At its February 15 meeting, the FASB agreed to exempt private companies from providing all documents that disclose any risk management activities. Instead, they will have to prepare a “statement of intent to hedge” featuring the hedging instrument, hedged item/transaction, the potential risk of the hedged item/transaction, and the method used to review effectiveness.

In addition, private companies will forego performing an effectiveness test to affirm a hedge accounting method until the issuance of their financial statements. Most of the board members also agreed to allow private companies to delay the selection of their hedge accounting method until testing is conducted. Private banking institutions will not be able to benefit from the approved exemptions.

Last week’s decisions were in relation to proposed Accounting Standards Update No. 2016-310, Derivatives and Hedging (Topic 815) — Targeted Improvements to Accounting for Hedging Activities. The FASB wants to make hedge accounting, one of the more complicated aspects of U.S. GAAP, easier for companies.

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