EBA欧洲银行-2011-03-09-EBA-comments-ED-2010-13-Hedge-accounting_12页_186kb

EBA Comments on IASB's Exposure Draft on Hedge Accounting

Core Content

The European Banking Authority (EBA) has provided detailed comments on the IASB's Exposure Draft (ED) on Hedge Accounting, which was issued in March 2011. The EBA, established on 1 January 2011, supports the shift from a rules-based approach to a more principles-based one in hedge accounting. This change aims to better reflect risk management practices in financial statements, aligning them more closely with the economic realities of hedging activities.

The EBA emphasizes that hedge accounting should not be used to evaluate the appropriateness of a hedging strategy from a risk management perspective, but rather to assess whether the strategy effectively offsets a specific risk exposure in the financial statements. They also highlight concerns about the exclusion of certain financial instruments from hedge accounting, such as equity instruments measured at fair value through other comprehensive income (OCI) and "sub-LIBOR" instruments, which they believe are inconsistent with the principles-based objective.

Main Views

1. Objective of Hedge Accounting

• Support: The EBA supports the ED's objective of better reflecting risk management practices in financial statements.
• Concerns: They caution against the potential for earnings management and emphasize the need for clarity in defining the objective.
• Recommendation: The objective should be clearly and consistently stated in the standard, and the ED should not restrict hedge accounting to instruments that are not aligned with the entity's risk management goals.

2. Eligibility of Instruments

• Support: The EBA agrees that non-derivative financial assets and liabilities should be eligible as hedging instruments.
• Concerns: They oppose the restriction on "sub-LIBOR" instruments and the exclusion of inflation and prepayment options from hedge accounting.
• Recommendation: These restrictions should be reconsidered, as they are not consistent with common risk management practices and the principles-based approach.

3. Hedge Effectiveness and Rebalancing

• Support: The EBA agrees with the removal of the "bright line" effectiveness test and the shift to an objective-based assessment.
• Concerns: The effectiveness criteria are not clearly articulated, leading to potential misinterpretation and inconsistency in application.
• Recommendation: The IASB should clarify the effectiveness requirements and ensure they are explicitly stated in the main body of the standard. Rebalancing should be required if the hedge relationship fails to meet effectiveness criteria, and the ineffectiveness should be recognized in profit or loss before rebalancing.

4. Discontinuation of Hedge Accounting

• Support: The EBA agrees that hedge accounting should be discontinued only when the hedging relationship no longer meets the qualifying criteria and the risk management objective has changed.
• Concerns: Entities may attempt to discontinue hedge accounting for strategic reasons rather than actual changes in risk management, leading to earnings management.
• Recommendation: The IASB should provide more guidance on what constitutes a documented and demonstrable risk management strategy and require detailed disclosures on changes in objectives.

5. Accounting for Fair Value Hedges

• Support: The EBA supports the recognition of gains or losses on hedging instruments and hedged items in OCI, with the ineffective portion transferred to profit or loss.
• Concerns: The proliferation of line items in the financial statements may hinder user understanding.
• Recommendation: The IASB should consider aggregating similar re-measurement items and provide supporting details in the notes. Linked presentation should not be allowed, as it may mislead users.

6. Time Value of Options

• Support: The EBA agrees that the time value of options should be accounted for in a manner similar to an insurance premium.
• Concerns: They question whether the proposed changes significantly differ from the IAS 39 approach and whether the impact on profit or loss remains consistent.
• Recommendation: More guidance is needed, especially on the allocation of time value costs over the relevant period.

7. Hedges of Groups of Items

• Support: The EBA supports the criteria for hedging groups of items, as they reflect real-world practices.
• Concerns: There is a risk that entities may use hedge accounting to change the measurement basis of financial instruments.
• Recommendation: The IASB should impose disclosure requirements to prevent such misuse and ensure transparency.

8. Disclosures

• Support: The EBA supports the proposed disclosure requirements as they enhance transparency and help users understand the relationship between hedge accounting and risk management.
• Concerns: The interaction between the proposed disclosures and those in IFRS 7 needs clarification.
• Recommendation: The IASB should consider additional disclosures, including changes in risk management objectives and the application of hedge effectiveness, to provide more useful information.

9. Accounting Alternatives

• Support: The EBA supports the idea of applying derivative accounting to non-financial contracts settled net in cash.
• Concerns: They highlight the need for more guidance on these alternative treatments.
• Recommendation: The IASB should explore further the possibility of hedging credit risk using credit derivatives, especially in light of the interaction with the impairment project and the need for adequate disclosure.

10. Effective Date and Transition

• Support: The EBA agrees with the proposed effective date of 1 January 2013 and the prospective application of the ED.

Key Information

• The EBA is in favor of a principles-based approach to hedge accounting, which aligns with risk management practices.
• They express concerns over the exclusion of certain financial instruments and the lack of clarity in effectiveness and discontinuation criteria.
• The EBA emphasizes the importance of transparency and detailed disclosures, particularly regarding changes in risk management strategies.
• They advocate for the inclusion of macro-hedging in the final standard, as it is critical for the banking industry.
• The EBA believes that the proposed changes, while beneficial, require further clarification and guidance to ensure proper implementation and avoid potential abuse.