The Financial Accounting Standards Board (FASB) published a proposed Accounting Standards Update (ASU) on Sept. 25.  

In a release, the FASB said that the ASU would clarify certain aspects of the guidance on hedge accounting while addressing several incremental hedge accounting issues from the global reference rate reform initiative.  

Input on the proposed ASU is due by Nov. 25. 

In 2017, the FASB issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, to illustrate better the economic results of an entity’s risk management activities in its financial statements and to make certain targeted improvements simplifying the hedge accounting guidance’s application. 

During the FASB’s 2021 agenda consultation project and other outreach, concerns were raised that, in certain circumstances, the current guidance heightens the risk of the inability to apply hedge accounting for otherwise highly effective hedging relationships, leading to less decision-useful information for investors.  

Another issue raised was that some areas of hedge accounting guidance required further updates to address the effects of reference rate reform on hedge accounting. 

The proposed ASU amendments would allow entities to apply hedge accounting to more highly effective economic hedges, thus improving the decision-usefulness of information offered to investors. 

In the ASU, the FASB said that consistent with the original objective of Update 2017-12, the proposed Update aims "to more closely align hedge accounting with the economics of an entity’s risk management activities.” 

The FASB added, “The amendments included in the five issues addressed in this proposed Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for a greater number of highly effective economic hedges. The proposed amendments would limit the occurrence of unintuitive de-designation events and missed forecasted transactions for those hedging relationships.” 

The five issues addressed in the proposed Update are: