The International Accounting Standards
Board (IASB) has issued a draft on hedge accounting that aligns
hedge accounting with risk management activities undertaken by
companies when hedging their financial and non-financial risk
exposures.

IASB chairman David Tweedie said the proposals sweep away the
existing rules-based, complex and inflexible hedge accounting
requirements, replacing them with a simple, principle-based
approach.

“The result, if adopted,
will be a much simpler model that better reflects risk management
practices whilst providing more useful information to investors,”
Tweedie said.

The Institute of
Chartered Accountants for England and Wales has backed the global
standards setters’ proposal on hedge accounting, but said the
standard is still incomplete.

“The true test of the
IASB’s proposals will first come when preparers of financial
statements begin to assess the practical implications of what is
being proposed, and whether it makes it easier for them to apply
hedge accounting in their business to reflect their risk
management,” Sleigh-Johnson said.

Ernst & Young’s
global IFRS financial instruments leader Tony Clifford said the
firm welcomes the IASB’s efforts to reduce complexity in hedge
accounting and to provide a principles-based approach that can be
consistently applied for both financial services entities and other
entities.

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“The proposals represent
a fundamental shift from the way entities applied hedge accounting
in the past,” Clifford said.

The consultation on
hedge accounting ends 9 March 2011.

The exposure draft forms
part of the IASB’s project to replace IAS 39 – Financial
Instruments: Recognition and Measurement
, with IFRS 9
Financial Instruments.