Changes to hedge accounting

KPMG reports on ASU 2017-12, which amends ASC 815. The amendments aim to reduce the cost and complexity of applying hedge accounting, and expand the types of relationships that qualify for hedge accounting.

Applicability

ASU 2017-12

• Companies that elect to apply hedge accounting

Relevant dates

Mandatory effective dates and early adoption provisions:

Early adoption allowed? Yes.

Key impacts

This ASU:

• Eliminates the requirement to separately measure and report hedge ineffectiveness
• Requires all items that affect earnings to be presented in the same income statement line as the hedged item
• Provides new alternatives for applying hedge accounting to additional hedging strategies and measuring the hedged item in fair value hedges of interest rate risk
• Expects to reduce the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method, and reducing the risk of material error corrections if a company applies the shortcut method incorrectly

Report contents

• Applicability
• Facts and impacts
• Recognition and presentation
• New hedging strategies
• New accounting alternatives for fair value hedges of interest rate risk
• Reduced cost and complexity to apply hedge accounting
• Effective dates and transition