FASB Provides Targeted Simplifications for Hedge Accounting

Aug 29, 2017
The Financial Accounting Standards Board announced updated accounting standards to help simplify certain components in current hedge accounting guidance. The update now includes hedging relationships for non-financial risks and adds the SIFMA Municipal Swap Rate as an identified interest rate risk index.The update also allows for:
  • partial-term fair value hedging,
  • isolation of prepayment components for prepayable financial assets, and
  • bifurcation of the benchmark interest rate component from the contractual coupon of the hedged item.

The updated guidance also eliminates the requirement for banks to disclose the ineffective portion of the change in fair value of the hedging instrument. The amendments are effective in 2019 for publicly held banks and for 2020 for all other banks, with interim periods requiring the change in 2021.