19 February 2013

ASCG: Consultation on the transition from IAS 39 to IFRS 9 for macro-hedging practices

The Accounting Standards Committee of Germany published its comment letter on EFRAG's Consultation on the transition from IAS 39 to IFRS 9 for macro-hedging practices - issued by EFRAG on 22 January, 2012.

Whilst ASCG does agree with EFRAG that practice seems to be coming to a different conclusion than the IASB as to what constitutes ‘macro hedging’, ASCG tends to disagree with the messages conveyed and the measures suggested as regards existing hedge accounting practice under IAS 39. ASCG's key points are as follows:

• IAS 39 never contained any macro hedge accounting concept. The standard uses a transaction-based approach which is often depicted with the label ‘micro hedge’ (accounting).
• As the current version of IAS 39 does not contain any macro hedge accounting concept, the IASB cannot take anything away from its constituents by shifting the requirements to IFRS 9. Hence, the message contained in the last paragraph on p.1 of the letter is factually wrong – “EFRAG believes that the revised wording […] does not allow the IASB to […] maintain[ing] the status quo of macro hedge accounting”.
• The authority of Implementation Guidance is exaggerated as it is non-authoritative, non-mandatory literature only, by which nothing is added to or taken away from the pronouncement. IGs exemplify how the standard is intended to be applied in dealing with practice issues.

The issue highlighted by some in EFRAG’s field test (as well as those that have made similar comments vis-à-vis the IASB) seems to be a perception issue: There seems to be a different understanding by the IASB and some entities as to what constitutes a macro hedge and what does not. Perceptions cannot be right or wrong, so one cannot accuse anyone or being accused by anyone for having them – which is why ASCG thinks the letter conveys the wrong message. The issue is not that the IASB, by shifting the paragraphs into IFRS 9, has changed the literature; rather, the issue is that some entities think what their accounting people are doing is apply macro hedging – which, technically speaking, is not the case. Therefore, ASCG does not believe that the issue can be resolved in the way that EFRAG suggests.

ASCG agrees with EFRAG that it would be preferable not to make entities change their hedge accounting approach twice within a relatively short time period, i.e. upon finalisation of the general hedge accounting requirements and again when the macro hedge accounting projected is completed.

Full comment letter

© ASCG (DRSC) - Accounting Standards Committee of Germany