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Monday 29 May 2017

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IFRS 9: Financial Instruments

Exposure draft and Comment letters [Dec 2010]



(paragraphs 40-52, BC183-BC208 and IE1-IE3)


Throughout this project we have undertaken extensive outreach with investors. In particular, we have tried to understand how investors view risk management activities and hedge accounting, and how they use hedge accounting information (including disclosures) in their analysis and decisions. The responses received from those outreach activities have been used to develop the proposed hedge accounting disclosures.

Almost all investors believe that hedge accounting should be more closely aligned to an entity�s risk management activities to improve the usefulness of the financial reporting information.

Click here for a summary of user feedback.

What is the problem?

The disclosures provided about hedge accounting today focus on the hedging instruments that an entity has rather than on the entity�s risk management activities.

Many investors do not find the hedge accounting disclosures in financial statements helpful. Many also think that the hedge accounting disclosures in IFRS 7 Financial Instruments: Disclosures do not help them understand the entity�s risk management activities.

What are the proposals?

The exposure draft proposes hedge accounting disclosures that provide information about:

(a) an entity�s risk management strategy and how it is applied to manage risk;

(b) how the entity�s hedging activities may affect the amount, timing and uncertainty of its future cash flows; and

(c) the effect that hedge accounting has had on the entity�s financial statements.

The reference to risks that are being managed refer to risk exposures that an entity decides to hedge and for which hedge accounting is applied. That is the scope of the disclosure proposals.

The proposed disclosures should enable investors to better understand the performance of the entity�s risk management activities and the effect of risk management on an entity�s future cash flows.

An example

The staff have prepared an illustrative example based on the proposed hedge accounting disclosure requirements. This example illustrates what the proposed disclosures could look like for a small oil company.

Click here to access the example.

Questions and answers

Click here for questions and answers on hedge accounting disclosures and other topics. 

Staff papers

As part of our due process, discussions of technical issues take place during public IASB meetings. For these meetings, the staff prepare technical papers on the specific technical topics. The Board then uses these papers as a basis for their proposals.

The papers that have been prepared for the Board to discuss hedge accounting disclosures are listed below. Click on the paper reference number to access the specific paper. Click on the related month to access the summary of decisions taken at that month�s IASB meeting.


TopicPaper refMonth discussed
Scope of hedge accounting disclosuresAgenda paper 17September 2010
Approach for developing the proposed disclosuresAgenda paper 20October 2010
Effects of hedge accounting on the balance sheetAgenda paper 20AOctober 2010
Effects of hedge accounting on the income statement, OCI and the cash flow hedge reserveAgenda paper 20BOctober 2010
Risk exposure and risk managementAgenda paper 20COctober 2010
Illustrative exampleAgenda paper 20DOctober 2010
Staff recommendation and questions to the BoardAgenda paper 20EOctober 2010

How to get involved

The exposure draft specifically asks for your views on this (and other) topics. Question 13 of the invitation to comment in the exposure draft asks:

(a) Do you agree with the proposed disclosure requirements? Why or why not? If not, what changes do you recommend and why?

(b) What other disclosures do you believe would provide useful information (whether in addition to or instead of the proposed disclosures) and why?

You may choose to answer all the questions in the invitation to comment or only some of them and you are welcome to comment on any other matter that you think we should consider in finalising the proposals. Comment letters will be posted on our website.

We will carefully consider all feedback and will discuss responses to the proposals in public meetings. We plan to issue the new standard in mid-2011.