GASB Guidance for Hedge Accounting – Comment Deadline Approaching

The deadline for submitting written comments on the Governmental Accounting Standards Board (GASB) exposure draft (ED), ‘Derivative Instruments: Application of Hedge Accounting Termination Provisions’ (an amendment of GASB Statement No 53), is 15 April 2011.

The ED proposes guidance that would amend requirements in Statement No 53, ‘Accounting and Financial Reporting for Derivative Instruments’, to clarify application of its termination provisions. The focus of the ED is the replacement of a swap counterparty when the counterparty commits an act of default or a termination event – for example, when an interest rate or commodity swap counterparty enters into bankruptcy. When a new counterparty agrees to enter into a swap with the same terms, the ED addresses whether accumulated deferred fair value changes reported prior to a counterparty’s replacement should continue to be reported as deferred inflows and outflows.

The provisions of the proposed statement are limited to when a swap represents a liability of a government, the replacement of the counterparty or its credit support provider meets the criteria of an assignment or in-substance assignment, and other swap terms are unchanged. When this is the case, the hedging relationship would not be considered to be terminated, and hedge accounting would continue to be applied.

The provisions of this proposed statement would be effective for financial statements for periods beginning after 15 June 2011.


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