Hedge accounting represents one of the more complex and nuanced topical areas within both US GAAP and IFRS. Both frameworks have updated guidance that attempts to simplify some of the requirements, ease administrative burdens, and allow for more strategies to qualify for hedge accounting. However, complexity still remains. Further, while the objectives of the IASB and FASB were originally similar, each Board ultimately chose a distinct approach. Consequently, significant differences exist between IFRS and US GAAP.
The following is a high level comparison of the IFRS 9 hedging model and the amended ASC 815 hedging model and the. It summarizes the differences between IFRS and US GAAP that we generally consider to be the most significant or pervasive, and should be read in combination with the authoritative literature and a thorough analysis of the relevant facts and circumstances.
Both IFRS and US GAAP permit application of hedge accounting to only certain eligible hedging instruments and hedged items. Also both require formal designation and documentation of a hedging relationship at the beginning of the relationship and an assessment of effectiveness.
However, the detailed requirements for hedge effectiveness vary between the two frameworks. Unlike US GAAP, there is no ‘high effectiveness’ criterion to qualify for hedge accounting under IFRS. Instead, IFRS 9 requires an economic relationship between the hedged item and the hedging instrument, which is a less restrictive test.
Several differences exist between the two framework as it relates to the eligibility of the hedged item.
Several differences exist between the two framework as it relates to the eligibility of the hedging instruments.
For hedges of a forecasted purchase of a nonfinancial item, IFRS and US GAAP differ with regards to the accounting (at the time of acquisition of the nonfinancial item) for the fair value changes of the hedging instrument that were deferred in OCI. This results in different amounts in OCI and different carrying amounts of the nonfinancial items between IFRS and US GAAP. However, the ultimate effect on earnings is the same.
US GAAP is more prescriptive regarding the presentation of gains and losses from hedges than IFRS.
Under both IFRS and US GAAP, an entity is required to discontinue a hedging relationship if the respective qualifying criteria are no longer met. However, voluntary dedesignation is not allowed under IFRS 9. In practice, this may have a limited impact because IFRS requires discontinuance of the hedging relationship when the risk management objective is no longer met.
This likely includes most instances when an entity might choose to voluntarily dedesignate a hedging relationship.
Both IFRS and US GAAP permit continuance of a designated hedging relationship when a contract is modified in certain circumstances. However, the circumstances under which the hedge relationship can continue after a modification differ under the two frameworks.
For a more detailed comparison, please refer to our ‘In depth: Hedge accounting: Contrasting US GAAP and IFRS’.
For the full guidance in understanding the differences between IFRS and US GAAP, refer to our ‘IFRS and US GAAP: similarities and differences’ publication.
For more detailed guidance on IFRS 9’s hedging provisions, see PwC’s In depth: Achieving hedge accounting in practice under IFRS 9. For more detailed guidance on ASC 815, see PwC’s Derivatives and hedging guide.
Cryptographic assets, including cryptocurrencies such as Bitcoin, have generated a significant amount of interest recently, given their rapid increases in value and volatility. As activity in cryptographic assets has increased, it has attracted regulatory scrutiny across multiple jurisdictions.
At issue is how to recognise, measure and disclose activities associated with the issuances of, and the investment in, the various types of cryptographic assets.
Since there are no accounting standards that specifically address cryptographic assets, one must look at the existing IFRS and apply a principles-based approach.
In our ‘In depth - Cryptographic assets and related transactions: accounting considerations under IFRS’, we highlight some of the accounting questions that are currently being debated and share our views on how IFRSs could be applied. The issues that arise are diverse and highly dependent on specific facts and circumstances.
While the examples and considerations illustrate generic principles, cryptographic asset transactions are rapidly evolving. As guidance and practices in this area evolve, this publication might be updated from time to time and expanded to capture further areas of interest (such as crypto mining).
The September 2018 IASB update has been published and the work plan updated.
The topics, in order of discussion, were:
David Baur
Partner, Investor Reporting and Sustainability Platform Leader, PwC Switzerland
+41 58 792 25 37
David Baur
Director and Leader Corporate Reporting Services, PwC Switzerland
Tel: +41 58 792 26 54
Partner, Investor Reporting and Sustainability Platform Leader, PwC Switzerland
Tel: +41 58 792 25 37