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The International Accounting Standards Board (IASB) is exploring whether it can develop an accounting model that will enable investors to understand a company’s dynamic risk management and to evaluate the effectiveness of that risk management.

The IASB gathered stakeholders’ views on the core model and is considering the challenges identified during meetings with preparers before deciding on the project direction.

IASB® Update November 2021

The IASB met on 19 November 2021 to discuss refinements to the Dynamic Risk Management model (DRM model) to address challenges identified during meetings with preparers.

Refinements to the DRM—Risk Limits (Agenda Paper 4A)

To enable an entity to better reflect its risk management strategy in the DRM model, the IASB tentatively decided:

  1. to revise the definition of the target profile as the range (risk limits) within which the current net open risk position can vary while still being consistent with an entity’s risk management strategy;
  2. to introduce to the DRM model a ‘risk mitigation intention’ element, representing the extent of risk an entity intends to mitigate using derivatives;
  3. to revise the requirements for construction of benchmark derivatives so that the benchmark derivatives represent the risk mitigation intention; and
  4. to introduce prospective assessments to ensure that an entity uses the DRM model to mitigate repricing risk due to changes in interest rates and achieve its target profile, as well as similar retrospective assessments to reflect misalignment arising from unexpected changes in the DRM model.

All 12 IASB members agreed with these decisions.

Designation of a portion of prepayable assets in the DRM model (Agenda Paper 4B)

The IASB tentatively decided not to make additional refinements in the DRM model to allow an entity to designate a portion of a portfolio of prepayable assets.

All 12 IASB members agreed with this decision.

Next milestone

Decide Project Direction