The Financial Accounting Standards Board (FASB), on May 5, issued a proposed accounting standards update to enhance the transparency of hedging activities for investors and analysts.
The proposed accounting standards update would expand the current single-layer hedging model to allow multiple-layer hedges of a single closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments under the method, according to the board.
To show that change, the last-of-layer method would be renamed the portfolio layer method.
The change would help coordinate hedge accounting with an organization’s risk management strategies, the board said.
The proposal also would also clarify eligible hedging instruments in a single-layer strategy; offer additional guidance on the accounting for, and disclosure of, fair value hedge basis adjustments that would apply to both the current single-layer model and the proposed multiple-layer model; and illustrate how fair value hedge basis adjustments should be considered when determining credit losses for the assets included in the closed portfolio.
FASB is asking stakeholders to submit feedback on the proposal by July 5.
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