Companies Find Favorable Changes in Hedge Accounting Update

FASB’s 2017 simplification of its complex hedge accounting guidance contained some high-profile changes that were welcomed by many businesses. Some long-standing interest rate risk management techniques now qualified for hedge accounting, a specialized accounting method that allows businesses, under certain circumstances, to reduce the volatility of reported earnings. Even businesses other than financial institutions welcomed the simplification, said Jon Howard, senior consultation partner at Deloitte & Touche LLP: a small but significant part of FASB’s changes to the “spot method” for hedge accounting allows them to favorably report the results of certain foreign currency swaps. This change, plus the strong U.S. dollar compared to the Euro or the Japanese Yen, puts U.S. companies with subsidiaries in Europe or Japan in a favorable position. “The economics are just perfect right now,” Howard said. “The economics made people rush into early adopting this new standard.”

Survey Shows Investors’ Mixed Views on Credit Losses Standard

FASB has heard received negative feedback from banks about its new credit losses standard, and some dissatisfied investors and analysts are also chiming in. As the 2020 effective date for public companies approaches, the board has received pressure from critics who have been calling on it to either delay the standard or tweak pieces so it is more palatable to banks. FIG Partners LLC, an Atlanta-based investment firm, published the results of a survey of 53 investors and analysts, with most of them questioning the benefits of the new accounting rule. Of those who responded, almost 85% said they believed existing bank loan loss accounting rules were sufficient. In a section of the survey that solicited open-ended comments, some raised concerns about the new standard shrinking the availability of credit. Another investor raised questions about understanding whether a bank’s estimates of losses are accurate enough. In another piece of feedback, a respondent said FASB should test the standard further before allowing it to be implemented.


More Changes Expected for Insurance Standard

At its January 23 meeting, the IASB is expected to make more changes to its much-watched insurance accounting standard. The potential changes, outlined in papers released in advance of the meeting, are aimed at making IFRS 17, Insurance Contracts, easier for insurance companies to follow rather than fundamentally changing its premise. Published in May 2017, the new standard aims to make insurers shed light on the complex calculations and estimates they make about the promises they make to their policyholders and what they expect to pay out. It offers a comprehensive accounting framework to replace the bare bones IFRS 4, Insurance Contracts, which the IASB issued in 2004 as a placeholder set of guidelines, not expecting it to still be in force 14 years later. The new insurance standard is scheduled to become effective in 2021, but the IASB plans to offer a one-year delay as it considers further changes to the standard. “The amendments would not unduly disrupt implementation already under way or risk undue delays in the effective date of this standard, which is needed to address many inadequacies in the existing wide range of insurance accounting practices,” one staff paper states.