Hedge Accounting Under US GAAP

Under US Generally Accepted Accounting Principles, companies across all sectors rely on the hedge accounting principles enshrined in Accounting Standards Codification (ASC) 815 to manage risk. However, they are often limited to using risk management tools outside of hedge accounting, due to certain prohibitions and technical complexities.

This whitepaper explores the issues faced by financial and non-financial institutions in applying hedge accounting for interest rate risk, foreign exchange risk and other risks. It highlights both the prescriptive nature of ASC 815 and the inconsistent interpretations among auditors, which together create operational burdens and can limit hedging strategies. The paper proposes potential solutions to these challenges, including the expansion of hedge eligibility and the revision of hedge accounting criteria, to allow better use of existing risk management tools.

All companies must navigate complex risks including interest rate changes, currency fluctuations and market volatility. If companies cannot apply hedge accounting to mitigate risk, this may result in financial reporting and earnings volatility that users of financial statements cannot easily discern. Effective risk management is crucial for financial stability, but existing guidance in ASC 815 prohibits the application of hedge accounting to certain hedging strategies.

The paper advocates for a holistic review of the hedge accounting framework to address these limitations, improve alignment with risk management activities and enhance the usefulness of financial statements.

Documents (1) for Hedge Accounting Under US GAAP

Joint Paper on UK EMIR Reform

On July 1, ISDA and UK Finance published a paper, which recommended a set of reforms for the UK European Market Infrastructure Regulation (UK EMIR), carefully considering each EU EMIR 3.0 reform and asking whether we would wish to adopt...

Response to FCA on UK EMIR Reporting

On June 30, ISDA submitted a response to chapter 5 of the UK Financial Conduct Authority’s (FCA) quarterly consultation CP25/16 on trade repository reporting requirements under the UK European Market Infrastructure Regulation (UK EMIR). Chapter 5 proposes ‘Amendments to the...

CDS Trading Activity in EU, UK and US Markets

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