Yes. These restrictions appear reasonable in the circumstances. However, the list of risks is prescriptive which seems inconsistent with a principles-based approach. In addition the hedging of risks of items such as equity price risk or financial contracts, which may be subject to commodity price risk, is not discussed.
 

Yes. However, while proposed amendments will clarify the requirements we consider that the reference to ‘a portion’ may result in unintended consequences in respect of hedging the one-sided risk for non-financial items.

The current drafting of paragraph 80Z could be interpreted as prohibiting the designation of one-sided risks arising from non-financial items.

The G100 believes that it would be helpful to include a clarification on the interaction of paragraph 80Z(d) and the existence of (non-separable) put or call options within debt instruments. Paragraph 80Z(d) states that “any contractually specified cash flows that are independent from the other cash flows of that instrument (for example, the first four interest rate payments on a floating rate financial liability)”. It could be argued that interest and principal cash flows occurring after the first exercise date of such an option are not independent. Our understanding is that although put or call options could have an impact on the eligibility of designation, for example, whether cash flows are highly probable of occurring, and impact hedge effectiveness. If the Board’s intention in principle is not to prohibit a designation when put or call options exist the amendment should be removed as it creates confusion where, based on our members’ experience, none exists.

We disagree with the clarification on hedging with options as stated in paragraphs AG99E and BC15 of the ED and recommend that the Board amend the standard to permit the deferral of the time value of options consistent with DIG G20. This would be a significant practical improvement in the standard and would also eliminate one of the major differences between FAS 133 and IAS 39. Accordingly, we believe that this represents an excellent opportunity to narrow the differences between US GAAP and IASB Standards.
 

We do not expect that the changes will cause companies to modify existing practice except where entities have:

• designated options as hedging instruments of one-sided risks and which include imputed time value; and
• designated the effects of inflation on fixed rate financial assets as the hedged risk.

No. Given the limited nature of the changes and the potential costs and burdens caused by the revised hedging arrangements we consider that the impacts should be dealt with on a prospective basis because the changes are more in the nature of a clarification.

The G100 proposes that the amendments should apply in the same manner as the IASB adopted in respect of amendments to IAS 39 relating to cash flow hedging of forecast intragroup transactions and not be applied retrospectively.