FASB simplifies accounting for derivatives and hedging instruments

The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The provisions of the new ASU are effective for fiscal years beginning after Dec. 15, 2018. The content becomes testable on the CPA Exam Jan. 1, 2019.

ASU No. 2017-12 is intended to accomplish the following:

• Expand hedge accounting for nonfinancial and financial risk components and amend measurement methodologies to more closely align hedge accounting with a company’s risk management activities
• Decrease the complexity of preparing and understanding hedge results through eliminating the separate measurement and reporting of hedge ineffectiveness
• Enhance transparency, comparability, and understandability of hedge results through expanded disclosures and changing the presentation of hedge results to align the effect of the hedging instrument and the hedged item
• Reduce the cost and complexity of applying hedge accounting by simplifying the manner in which assessments of hedge effectiveness may be performed

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Susan J. Cox, M.Acc., CPA is a Senior Technical Editor for Surgent CPA Review. Susan received her graduate and undergraduate degrees from Florida State University. Prior to joining Surgent, Susan worked as a technical editor for Thomson Reuters, an accounting instructor for the University of South Florida, a senior internal auditor for GTE, and an experienced senior auditor for Arthur Andersen & Co.