15 November 2013

FRC proposes amendments to hedge accounting

Businesses enter into hedging arrangements in order to mitigate financial risks and hedge accounting allows them to reflect the economic substance of their hedging relationships in the financial statements, by reducing volatility in reported profit or loss.
The FRC issued the new GAAP in March this year, highlighting that it would review hedge accounting in the light of international developments.

The existing requirements, although relatively simple, are very prescriptive and may unduly restrict the application of hedge accounting.  Under the new proposal hedge accounting will be available for a wider range of hedging relationships.

Melanie McLaren, Executive Director, Codes and Standards, said: “In developing our hedge accounting proposals, we have followed the same principles as in developing the new UK and Irish GAAP; basing them on international approaches but pragmatically tailored to the nature and circumstances of those businesses that may apply them.

The IASB’s recently agreed principles for hedge accounting are the basis for this proposal, but we have taken a practical approach and made a number of simplifications. We were mindful that smaller, less complex businesses also enter into arrangements to hedge financial risks and hedge accounting should be as accessible as possible to all types of businesses, large and small.”

The amendments are proposed to be effective from the same date as the new UK GAAP, 1 January, 2015.

Press release

FRC´s proposal

© FRC