EFRAG has completed its due process regarding the IASB Exposure Draft of Amendment to IAS 39. The ED proposes to amend IAS 39 to specify what risks qualify for designation as hedged risks when an entity hedges its exposure to a financial instrument, and when an entity may designate a portion of the cash flows of a financial instrument as a hedged item. The ED also clarifies that, in designating as a hedged item a portion of a financial instrument, an entity cannot specify as the hedged item a cash flow that does not exist in the financial instrument as a whole, such as for example time value of a hypothetical written option in a non-derivative financial asset.
EFRAG would much prefer if a principle could be developed to determine when a risk exposure could be designated for hedge accounting purposes under IAS 39. However, acknowledging difficulty in developing a principle in this area of hedge accounting, EFRAG suggests the IASB considers instead including in IAS 39 application guidance that focuses exclusively on the issues that have arisen and need to be addressed, because the proposed broadly–based amendment seems to have unintended consequences.
EFRAG also underlines that the proposed amendment as it currently stands appears to counteract some of the effect of the “European carve out” to IAS 39.
EFRAG comments on amendments to IAS 39
© EFRAG - European Financial Reporting Advisory Group
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