The IMA Financial Reporting Committee (FRC or Committee) issued a comment letter in response to the FASB’s Proposed ASU No. 2019-790, Derivatives and Hedging (Topic 815): Codification Improvements to Hedge Accounting. In this exposure draft, the FASB proposes amendments to the current accounting model regarding hedging relationships. These proposed amendments result from stakeholder input in connection with ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.
In its comment letter, the FRC appreciates the FASB’s continued efforts to improve the US GAAP hedge accounting model so that it corresponds more closely with the economics of an entity’s risk management activities. Responding primarily to Proposed ASU No. 2019-790 Issue 1 regarding changes in the hedged risk of a cash flow hedge, the Committee agrees with the objective of allowing a highly effective hedging relationship to continue if a designated risk changes but other aspects of the hedging relationship remain unchanged. The FRC believes, however, that the proposed amendments would benefit from additional clarification to ensure operability. Among several points, the Committee describes potential challenges in interpreting and applying the proposed guidance to various scenarios such as portfolio hedges and multiple hedging relationships.