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IFRS 9: Financial Instruments

IASB meeting summaries and observer notes

 IASB October 2012


The IASB met to continue the discussion on the proposed revaluation model for interest rate portfolio hedging activity. In this meeting they discussed the last of the 11 steps identified at the November 2011 meeting.

Credit risk and floating leg considerations (Steps 8 and 9)

The IASB discussed the treatment of changes in fair value of hedging derivatives with respect to credit risk and floating legs within the proposed revaluation model.

It was discussed that under the revaluation model hedging derivatives would remain at Fair Value through Profit or Loss (FVPL), as required by IFRS 9 Financial Instruments. Measuring the fair value of derivatives is governed by IFRS 13 Fair Value Measurement, which would include fair value fluctuations resulting from changes in derivatives’ floating legs and credit risk.

Treatment of unrecognised items: loan commitments and pipeline trades

The IASB discussed whether items that are not recognised in the statement of financial position could be integrated into the accounting model for macro hedging on the basis of a net portfolio revaluation approach for interest rate risk. This relates to Steps 2 and 3 of the 11-step overview presented at the November 2011 meeting. The focus of the discussion was on transactions that do not yet exist (eg forecast volumes of products at advertised rates—colloquially referred to as ‘pipeline trades’).

The IASB considered the following aspects.

  1. whether including pipeline trades in the hedged risk position would be consistent with the existing Conceptual Framework for Financial Reporting (the Framework) and there was also discussion that the Discussion Paper on accounting for macro hedging would overlap with the discussion of the project on the Framework;
  2. the economic and legal boundary between existing and non-existing items; and
  3. accounting implications and alternatives when pipeline trades are prohibited from being included in the hedged risk position.

No decisions were made.

Next steps

The IASB staff will start to consider the application of the proposed revaluation model to risks other than interest rate risk. The staff will also begin drafting an overview of the revaluation model after consideration of the IASB discussions to date, which could be included in a Discussion Paper on Accounting for Macro Hedging.

Date: 10/17/2012