Dataline: Simplified hedge accounting approach - New private company alternative for certain interest rate swaps (No. 2014-06)

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Dataline 04/03/2014 by Assurance services
Dataline: Simplified hedge accounting approach - New private company alternative for certain interest rate swaps (No. 2014-06)

At a glance

The FASB issued a new accounting standard for private companies that is intended to simplify the hedge accounting requirements for certain interest rate swaps.

On January 16, 2014, the FASB issued ASU No. 2014-03, Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach.

This standard provides private companies with an accounting alternative intended to make it easier for certain interest rate swaps to qualify for hedge accounting. Under the simplified hedge accounting approach, an eligible private company would be able to apply hedge accounting to its receive-variable, pay-fixed interest rate swaps as long as certain conditions are met.

Existing guidance would be simplified in that a company electing this alternative would (1) be able to assume the cash flow hedge has no ineffectiveness, (2) have until the date on which the first annual financial statements are available to be issued after hedge inception to complete its necessary hedge documentation, and (3) have the option to recognize the interest rate swap at its settlement value, which excludes non-performance risk, instead of at its fair value.

The standard is effective for annual periods beginning after December 15, 2014 and interim periods within annual periods beginning after December 15, 2015. Early adoption is permitted.

This Dataline summarizes the main provisions of the ASU, provides insights into key aspects of the standard and highlights relevant considerations for private companies that may consider adopting this accounting alternative.