SOFR Interest Rate for Hedge Accounting Due By End of the Year
The Financial Accounting Standards Board (“FASB”) plans to publish a U.S. GAAP update that adds a new benchmark interest rate for hedge accounting. Set to be released by year’s end, the planned update will use the Secured Overnight Financing Rate (“SOFR”) as a benchmark rate for labeling hedges of interest rate risk. If the update is finalized, the SOFR will be added to Topic 815, Derivatives and Hedging. Introduced by the Federal Reserve earlier this year to replace the controversial London Interbank Offered Rate (“LIBOR”), the SOFR is founded on the interest rates banks charge each other in the overnight. Read More.
FASB Finalizes Updated Hedge Accounting Guidance
Announced on Monday, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) that improves the guidance related to hedge accounting. ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, aligns the accounting provisions with an entity’s risk management activities, as well as reflects the economic impact of hedging in financial statements, and streamlines hedge accounting treatment. In addition, the new standard expands hedge accounting for financial and commodity risks. The requirements provide additional clarity regarding how economic results are disclosed in financial statements. ASU No. 2017-12 will be effective for public. Read More.
FASB Issues Update on Certain Financial Instruments with Liabilities and Equity Characteristics
Following recommendations from the Private Company Council, the Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update No. 2017-11, Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception. Part I simplifies accounting for select financial instruments with down round features, a rule in an equity-linked financial instrument or embedded feature that offers a downward adjustment. Read More.
Topics: Accounting Standards Update, Derivatives and Hedging (Topic 815), Distinguishing Liabilities (Topic 480), Earnings Per Share (Topic 260), FASB, Financial Accounting Standards Board "FASB", Financial Instruments, mandatorily redeemable financial instruments, Private Company Council "PCC"
FASB Reaches Decisions on Proposed Hedge Accounting Updates
Last week while discussing its proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the Financial Accounting Standards Board agreed to include a cross currency basis spread in a currency swap to the list of excluded amounts from hedge effectiveness assessments. In addition, the FASB agreed on using an amortization approach with respect to the base recognition model for excluded components. Companies will also be allowed to use a mark-to-market through earnings method. Further, when a hedging relationship ends and an amortization approach is applied, the fair value changes of excluded components in. Read More.
FASB Reaches Decisions on Hedge Accounting Project
During a review last week on its proposed Accounting Standards Update, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, the Financial Accounting Standards Board (“FASB”) reached conclusions on the following topics: The market yield test. The FASB decided to exclude the market yield test from the final standard. Companies would have been required to use the total contractual coupon cash flows to determine fair value of the hedge item attributable to interest rate risk, if the hedge item’s market yield is below the benchmark interest rate at hedge inception. Companies now have the freedom to use. Read More.
Topics: Derivatives and Hedging (Topic 815), FASB, Financial Accounting Standards Board "FASB", Hedge Accounting, Hedging, Last Layer Approach, Market Yield Test, Prepayable Assets, Proposed Accounting Standards Update
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. Read More.