IASB Publishes Proposals On Macro Hedging
The International Accounting Standards Board (IASB) has published proposals to improve the implementation of IAS 39. If adopted the new proposals would enable fair value hedge accounting to be used more readily for a portfolio hedge of interest rate risk, according to IASB. The organisation noted that the Draft retains the basic principles behind IAS 39 while aiming to reduce the cost of compliance. It explained that the need for such guidance is driven by the increasingly prevalent use of financial instruments for both risk management and other operating purposes. At the end of 2002, the Bank for International Settlements estimated that the total notional amount of over-the-counter (OTC) derivatives contracts stood at US$141.7 trillion; the gross market values of those contracts was $6.4 trillion. Without a standard such as IAS 39, the impact of derivative contracts on an individual company’s accounts would be unknown to investors, and financial instruments would be shown in a company’s financial reports either at cost – which is generally zero – or not at all, said IASB.