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Thursday 31 July 2014

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Novation of derivatives and continuation of hedge accounting


 Comment letters

On 28 February 2013, the International Accounting Standards Board (IASB) published for public comment an Exposure Draft of proposed amendments to IAS 39 Financial Instruments: Recognition and Measurement. Corresponding requirements are proposed to be included in the forthcoming hedge accounting chapter in IFRS 9 Financial Instruments.

 

The objective of the proposed amendments is to introduce a narrow scope exception to the requirement for the discontinuation of hedge accounting in IAS 39.  Specifically, they propose an exception when a derivative that has been designated as a hedging instrument, is novated from one counterparty to a central counterparty (CCP), as a consequence of new laws or regulations if specific conditions are met (in this context, novation of the derivative contract is the substitution of the original counterparty to the contract for a new counterparty, being a CCP).

 

The IASB considered the fact that the legislative changes that would require such novation of derivatives would be widespread across jurisdictions.  These legislative changes were prompted by a G20 commitment to improve transparency and regulatory oversight of over-the-counter derivatives in an internationally consistent and non-discriminatory way.

Comment Letter deadline

 

The Exposure Draft comment period ended on 2 April 2013.

Respondent type

  • Respondent Type Number Percentage
  •  
    Standard-setting body
    19
    25%
  •  
    Preparer / Representative body
    17
    22%
  •  
    Preparer / Industry
    17
    22%
  •  
    Accountancy body
    11
    15%
  •  
    Accounting Firm
    7
    9%
  •  
    Regulator / Securities
    3
    4%
  •  
    Individual
    2
    3%
  • Total 76 100%

Geographic region

  • Geographic Region Number Percentage
  •  
    Europe
    37
    49%
  •  
    Asia
    11
    14%
  •  
    Global
    8
    11%
  •  
    North America
    8
    11%
  •  
    Oceania
    5
    6%
  •  
    South America
    4
    5%
  •  
    Africa
    3
    4%
  • Total 76 100%