Defining Issues | December 2016
 

SEC staff clarifies effect of rule changes on hedge accounting

KPMG reports on SEC clarification of CCP rule changes. SEC clarifies ASC 815 impact as a result of CCP rule changes. Changes required but existing hedge relationships continue.

Applicability

Application of ASC 815

  • Registrant that uses or plans to use central clearing parties (CCP) to settle derivative transactions
  • Registrant that functions as a clearing member in dealings with CCP
  • Registrant that is a CCP

Relevant dates

  • Effective immediately

Key impacts

  • Rule changes by some CCPs will treat certain payments as the legal settlement of the outstanding derivative contract exposure instead of the posting of collateral. This means that end users and clearing members may need to change how they classify certain payables and receivables related to derivative collateral, and related income and expense amounts in their financial statements
  • Each CCP will change its own rules. Certain CCP rule changes will result in all payments being considered legal settlement, while others will allow a clearing member to elect the rule changes on an individual contract or portfolio basis
  • Some CCPs have already changed their rules, while others are expected to in the near future
  • End users and clearing members may continue their existing hedge accounting relationships – i.e. they do not need to be terminated

Report contents

  • Background on central clearing
  • Continuation of US GAAP hedge accounting
  • Other implication for US GAAP accounting

 

 

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