Global Standards for the world economy

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IFRS 9: Financial Instruments

IASB meeting summaries and observer notes

 IASB September 2012


The IASB discussed whether ‘internal derivatives’ could play a role in accounting for macro hedging. Internal derivatives are derivatives that are entered into between different business units within a consolidated group. This relates to step 10 of the 11-step overview presented at the November 2011 meeting. The discussion focused on a bank with a business model in which banking book interest rate risk is managed (partly or wholly) through the use of the internal derivatives with the trading book. The debate considered two aspects:

  1. whether the existence of internal derivatives is a relevant aspect when deciding the financial assets and liabilities to which a revaluation model for interest risk could be applied; and
  2. whether internal derivatives should also have a role in income statement presentation.

The IASB also discussed what accounting implications the concept of risk limits might have for the accounting for macro hedging, which is based on a revaluation model for interest rate risk. The discussion explored whether it is possible to reflect a risk management objective to hedge only a part of a risk position in the accounting model similarly to a distinction between hedge ineffectiveness and unhedged positions. The discussion highlighted the difficulties that would result from introducing the risk limit concept into the accounting model, such as departures from IFRS principles, a lack of comparability among entities and operational difficulties.

The IASB was not asked to make any decisions at this meeting.

Date: 9/26/2012