Defining Issues | May 2021

 

Insight

FASB proposes clarification for hedge accounting

Proposed ASU would amend the accounting for a fair value hedge of a closed portfolio of prepayable financial assets.

The FASB’s proposal would expand the use of the portfolio method to include hedges of multiple-layers of a closed portfolio, and provide additional guidance on the accounting for fair value hedge basis adjustments.

Applicability

  • Entities that elect to apply the portfolio method in ASC 815. 

Relevant dates

  • May 5, 2021 – FASB issued proposed ASU
  • July 5, 2021 – Comments due 

Key impacts

The proposed ASU includes the following key provisions:

  • Allows multiple last-of-layer hedging relationships to be designated for: 
  • a single closed portfolio of prepayable financial assets; or 
  • one or more beneficial interests secured by a portfolio of prepayable financial instruments.
  • Clarifies how to account for a fair value hedge basis adjustment when there is a dedesignation of a portfolio method hedging relationship.
  • Clarifies how the fair value hedge basis adjustments should be considered when determining credit losses for assets in the closed portfolio.

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