The hedge accounting project is phase III of the IASB’s project to replace IAS 39 and intends to remove many of the restrictions that prevented some economic hedging strategies from qualifying as accounting hedges. Under the model in its recent review draft, entities will be able to designate (subject to meeting certain criteria) risk components of both financial and non-financial items at fair value through other comprehensive income. The assessment of hedge effectiveness will still be required at inception and on an ongoing basis; however, the rules for assessing effectiveness have been relaxed and the assessment will only be forward-looking.
Disclosures about the effects of hedge accounting are now required in one comprehensive note to the financial statements. Hedge accounting will continue to be an accounting choice and designation of hedging relationships along with supporting documentation is still required.
The changes will mean more of hedging strategies will qualify for hedge accounting and for those who had abandoned hedge accounting because of the constraints in the current rules, there will now be an opportunity to reconsider and potentially qualify under less onerous requirements once the final standard (expected in the third or fourth quarter of 2013) is issued.