Patricia Stebbens KPMG partner, ASPAC Financial Instruments Chair said: “It appears that the Board has responded to stakeholder requests for conceptual clarifications and more ‘meat on the bone’ for the new concepts. It has done this without losing the more principles-based approach that aligns hedge accounting more closely with risk management that many constituents viewed as a positive step forward.”
Stebbens continued: “Airlines, manufacturers and other sectors that have to manage significant commodity price exposures will have the most to gain from the proposals to permit hedge accounting for risk components of non-financial items. 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.”
However, Stebbens cautioned: “Although the principles in the draft will provide welcome relief, the application guidance in some areas remains complex. Significant effort may be required to analyse the requirements and determine how to apply them to a company’s particular circumstances. While some entities may be eager to implement the proposals, they may need to apply a greater degree of judgement to comply with them. For example, companies that hedge foreign currency exposure from offshore funding with cross currency swaps may have increased volatility in their income statement.
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.”
The draft will be available until early December 2012, after which time the IASB intends to proceed to finalise the draft.