Getting Ahead with Hedge Accounting

The International Accounting Standards Board has issued a draft hedge accounting standard for ‘fatal flaw’ review before the release of the final standard. The final standard will be mandatory for annual reporting periods beginning on or after 1 January 2015. We expect that many corporate entities will be interested in early adopting the new standard due to the potential benefits it will bring to the accounting treatment of current and future hedging strategies.

All entities that use derivatives to manage risk could benefit from these changes, regardless of whether they use hedge accounting today. The proposed standard is expected to achieve greater alignment between the economics and the accounting treatment of hedges in a manner that should generally be simpler to implement. Some of the key changes proposed by the draft hedging standard are outlined in the diagram below.