Companies with significant commodity price exposure most likely to welcome changes
KPMG welcomes the International Accounting Standards Board’s new general hedge accounting standard – IFRS 9 Financial Instruments (2013) – issued today.
Patricia Stebbens, KPMG’s Asia-Pacific IFRS financial instruments Chair, said: “Many preparers will support the new general hedge accounting standard. It provides a more principles-based approach that aligns hedge accounting more closely with risk management, which many constituents view as a positive step forward.”
Stebbens commented: “Airlines, manufacturers and others that have to manage significant commodity price exposures will have the most to gain from the new ability to apply hedge accounting for risk components of non-financial items. Entities that manage their risk with options will also welcome this new standard. A company will be able to reflect in its financial statements an outcome that is more consistent with how management assesses and mitigates risks for key inputs into its core business.”
The new standard also removes the rigid ‘bright line’ for assessing hedge effectiveness, which will allow for a more flexible principles-based approach to hedge accounting.
However, Stebbens cautioned: “Although the principles in the new standard will provide welcome relief, the application guidance in some areas remains complex. Significant effort may be needed to analyse the requirements and determine how best to apply them to a company’s particular circumstances. While some entities may be eager to implement the new hedging model, they may need to apply a greater degree of judgement to comply with it. In addition, to complement a more principles-based approach, additional disclosures will be required to inform users of how an entity is managing its risks.”
Currently the relevant Australian standard AASB 9 has a mandatory effective date of 1 January 2015. It is likely that the Australian Accounting Standards Board may defer the mandatory effective date. However, entities can elect to early adopt the hedging requirements if all existing IFRS 9 requirements are adopted at the same time.