KPMG: Alignment of hedge accounting and management of risk

By Rob Starr, Content Manager, Big4.com

The IASB has released its draft review of general hedge accounting. Although the draft won’t be available until early December 2012, after which time the IASB intends to proceed to finalise the draft, several comments have been made.

“It appears that the Board has responded to stakeholder requests for conceptual clarifications and more ‘meat on the bone’ for the new concepts,” says Patricia Stebbens KPMG partner, ASPAC Financial Instruments Chair. “It has done this without losing the more principles-based approach that aligns hedge accounting more closely with risk management that many constituents viewed as a positive step forward.”

She goes on to say that although the principles in the draft will provide welcome relief, the application guidance in some areas remains complex.   Stebbens adds that  significant effort may be required to analyse the requirements and determine how to apply them to a company’s particular circumstances. ”

“While some entities may be eager to implement the proposals, they may need to apply a greater degree of judgement to comply with them. For example, companies that hedge foreign currency exposure from offshore funding with cross currency swaps may have increased volatility in their income statement,” she says.