FRC proposes amendments to hedge accounting

News types: Consultation Announcement

Published: 15 November 2013

PN 097
The FRC has today issued for consultation hedge accounting proposals in UK and Irish GAAP. Businesses enter into hedging arrangements in order to mitigate financial risks and hedge accounting allows them to reflect the economic substance of their hedging relationships in the financial statements, by reducing volatility in reported profit or loss. The FRC issued the new GAAP in March this year, highlighting that it would review hedge accounting in the light of international developments.

The existing requirements, although relatively simple, are very prescriptive and may unduly restrict the application of hedge accounting.  Under the new proposal hedge accounting will be available for a wider range of hedging relationships.


Melanie McLaren, Executive Director, Codes and Standards said:

“In developing our hedge accounting proposals, we have followed the same principles as in developing the new UK and Irish GAAP; basing them on international approaches but pragmatically tailored to the nature and circumstances of those businesses that may apply them.

The IASB’s recently agreed principles for hedge accounting are the basis for this proposal, but we have taken a practical approach and made a number of simplifications.  We were mindful that smaller, less complex businesses also enter into arrangements to hedge financial risks and hedge accounting should be as accessible as possible to all types of businesses, large and small.”

The amendments are proposed to be effective from the same date as the new UK GAAP, 1 January 2015.

The FRC invites comments on these proposals. The comment period closes on 14 February 2014.

Notes to editors:
  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. It sets the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. It represents UK interests in international standard-setting. It also monitors and takes action to promote the quality of corporate reporting and auditing. It operates independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
  2. UK and Irish GAAP is set out in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The hedge accounting amendments are set out in Financial Reporting Exposure Draft 51: Draft Amendments to FRS 102 – Hedge Accounting​
  3. UK and Irish GAAP is set out in FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. The hedge accounting amendments are set out in Financial Reporting Exposure Draft 51: Draft Amendments to FRS 102 – Hedge Accounting. FRED 51 proposes to allow entities to apply hedge accounting where the hedged item, hedging instrument and hedging relationship meet certain broad conditions. The proposal simplifies hedge accounting, for example entities are not required to assess quantitatively whether a hedge is effective at the start of a hedging relationship nor are there any restrictions should an entity wish to discontinue hedge accounting. Illustrative examples contained in FRED 51 demonstrate how the requirements may be applied.
  4. FRED 51 is available on the FRC website and can be found here.

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