Why are we doing this project?
Users of financial statements and other interested parties asked the IASB to develop a new standard for the reporting of financial instruments that is principle-based and less complex, because IAS 39 Financial Instruments: Recognition and Measurement was difficult to understand, apply and interpret.
The IASB had not previously undertaken a fundamental reconsideration of reporting for financial instruments within IAS 39. This project addresses dynamic risk management strategies for open portfolios (macro hedging). The IASB received views from financial institutions and also from entities outside the financial sector that addressing situations in which entities use a dynamic risk management strategy was important. Dynamic risk management of open portfolios introduces complexity to the accounting for such hedges that cannot be accommodated within the IFRS 9 hedge accounting guidance for closed portfolios.
Users of financial statements also told the IASB that hedge accounting should be more closely aligned to an entity's risk management activities. The staff have focused on understanding the risk management activities undertaken for open portfolios and considered whether such practices could be usefully included within an accounting approach.
What are we proposing for macro-hedging?
In line with the direction of the IASB discussions, a valuation approach is being explored, in which for accounting purposes the hedged risk position is identified and remeasured for changes in the hedged risk, recognising the gain or loss in profit or loss.
The project aims to develop an accounting solution that both reflects how businesses manage risk dynamically, and helps users to understand risk management activities.
It was agreed by the IASB at the May 2012 meeting that the next step would be to issue a Discussion Paper rather than an Exposure Draft.
This project was initially part of IFRS 9 Phase III: hedge accounting. It was decoupled from the IFRS 9 project into a separate project in May 2012. Separating the two facilitates the completion of IFRS 9 whilst allowing the staff to elicit a broader range of accounting alternatives from a broader range of constituents on the accounting of macro hedging.