Private Companies – More Hedge Accounting Wins

On February 15th, the FASB discussed potential changes to the requirements for hedge documentation for private companies.

During the January FASB meeting, the board looked at how the exposure draft changes to hedge accounting might impact private companies and decided to look specifically at the timing requirement for the production of hedge documentation, including the initial effectiveness testing requirements.

During these re-deliberations, the Board decided to require nominal notice of intent when private companies (except financial institutions) execute hedges and then provided additional time to prepare the full complement of required hedge documentation. Private companies, under the proposed guidelines, will have these deadlines extended until the next set of financial statements is available to be issued.

This flexibility will allow private companies to defer both the preparation of complete documentation and performance of the inception effectiveness assessment (whether it be a quantitative or qualitative test) until financial statements are issued. To qualify for this flexibility, a Private Company must prepare a statement of intent to hedge which must include the following information in accordance with ASC 815-20-25-3(b)(2) – Identification of:

  • The hedging instrument
  • The hedged item
  • The nature of the risk being hedged

The statement of intent to hedge must be prepared at the same time the hedge is placed.