Update on Hedge Accounting (General Model)

Transcription

1 International Financial Reporting Standards Update on Hedge Accounting (General Model) The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation IFRS Foundation. 30 Cannon Street London EC4M 6XH UK.

2 Aspects of the general hedge accounting model 2 Objective Alternatives to hedge accounting Hedged items Presentation and Disclosure Hedge accounting (exposure draft) Hedging instruments Groups and net positions Discontinuation and rebalancing Effectiveness assessment

3 Hedged items 3 Qualifying hedged item Entire item Component Risk component (separately identifiable and reliably measurable) Nominal component or selected contractual CFs

4 Hedged items: risk components 4 IAS 39 New model Fixed element Fixed element Variable element Variable element Benchmark (eg interest rate or commodity price) Benchmark (eg interest rate or commodity price) Benchmark (eg interest rate or commodity price) Benchmark (eg interest rate or commodity price)

5 Hedged items: aggregated exposures 5 Aggregated exposure combination of: (a) another exposure and (b) a derivative First level relationship [non-derivative] exposure derivative Second level relationship Hedged item Hedging instrument

6 Hedged items: aggregated exposures 6 Example 1: hedging commodity price & FX risk Miner US$ Commodity futures contract FX forward contract US$ US$ US$ Customer (commodity purchaser) Aggregated exposure Not an eligible hedged item under IAS 39

7 Hedged items: aggregated exposures 7 Example 2: hedging FX & interest rate risk Debt holder US$ Crosscurrency Interest rate swap Interest rate swap US$ Issuer Aggregated exposure Not an eligible hedged item under IAS 39

8 Hedged items: groups of items 8 Groups Gross positions Net positions Requirements for income statement presentation Fair value hedge: all risks Cash flow hedge: only FX risk

9 Hedging instruments 9 Qualifying hedging instruments Entire item Partial designation FX risk component Intrinsic value Spot element Percentage of nominal amount

10 Costs of hedging 10 Costs of hedging Time value of options Forward element of forward contract Transaction related hedged item Time period related hedged item

11 Hedge effectiveness 11 Hedge effectiveness Hedge effectiveness test: 1. Economic relationship 2. Effect of credit risk 3. Hedge ratio Measuring and recognising hedge ineffectiveness Rebalancing Discontinuation

12 Disclosures: scope 12 Proposed scope for hedge accounting disclosures Total entity risk exposure (no specific disclosure requirements) IFRS 7 Disclosure requirements Hedged exposure (Exposure to risks being hedged) Significance of financial instruments for financial position and performance Nature and extent of risks arising from financial instruments Entity s exposure attributable to the hedged risk

13 Disclosures 13 Hedge accounting disclosures Risk management strategy Amount, timing and uncertainty of future cash flows Effects of hedge accounting on the primary financial statements Specific disclosures for dynamic strategies and credit risk hedging

14 Alternatives to hedge accounting 14 Alternatives Own use scope exception in IAS 39 Credit derivatives Eligible for FVO in IFRS 9 Elective FVTPL At initial recognition or subsequently At discontinuation: amortisation

15 Transition Prospective transition with limited exceptions Retrospective application Required for time value of options Permitted for accounting for forward elements (if elected, applies to all such hedging relationships) Practical expedients Allowed to consider the moment IAS 39 ceases to apply and the moment from which the new model applies as one point in time For rebalancing, the starting point will be the hedge ratio used under IAS 39 (any gains or losses will be recognised in profit or loss) Hedging relationships that qualified under IAS 39 and qualify under the new model will be treated as continuing hedging relationships 15

16 General hedge accounting: timetable 16 Exposure Draft on general hedge accounting published December 2010 Redeliberations started in March 2011 completed in September 2011 Aim to have staff draft of final general hedge accounting requirements available on website in Q (for about 3 months) Effective date will be aligned with other phases of IFRS 9 Annual periods beginning on or after 1 January 2015 with earlier application permitted All existing IFRS 9 requirements must be adopted at the same time (or already have been adopted)

17 Questions or comments? 17 Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.