Wednesday, March 10, 2010

Hedge Accounting Proposal Will Permit Bifurcation-by-Risk; Emphasizes Qualitative Assessment

At its board meeting earlier today, consistent with an earlier decision made at its February 17 board meeting, FASB agreed to permit bifurcation-by-risk for hedge accounting in its upcoming proposal on hedge accounting The Exposure Draft of the proposed standard is expected to be released for public comment in March, 2010. The proposal to permit bifircation-by-risk represents a change from FASB's previous earlier hedge accounting proposal released in June, 2008.

Among other key points in the upcoming Exposure Draft, entities would be required to perform a qualitative (rather than quantitative) test at inception to demonstrate that an economic relationship exists between the hedging instrument and the hedged item or forecasted transaction. However, board members emphasized, the Exposure Draft will explain that in some situations a quantitative test may still be necessary at inception.

The board also discussed how the proposed hedge accounting model would be applied by certain nonpublic entities for which the board tentatively decided to provide a delayed implementation date on certain aspects of its proposed financial instruments project, particularly relating to the valuation of core deposit intangibles, and loans (nonpublic entities with less than $1 billion consolidated total assets).

Refer to FASB's Summary of Board Decisions for details.

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