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IASB Releases Hedge Accounting, Risk Management Standard

The International Accounting Standards Board recently unveiled IFRS 9, which r

The International Accounting Standards Board on September 7 unveiled the final draft of a proposal to improve risk management in hedge accounting.

The proposal, which has been nearly two years in the making, strengthens the link between risk management activities, the rationale for hedging and the impact on financial reports. According to an analysis from PricewaterhouseCoopers, the provision will impact all organizations that engage in risk management activity, though certain industries will be more affected than others. Audit firm KPMG backed up this assertion, noting that companies in the finance and insurance industry will likely not see much change in their reporting practices, while airlines and manufacturers will see the biggest changes.

"These entities typically enter into contracts to buy or sell non-financial items that contain various risk components, such as, foreign exchange risk, commodity price risk and basis risk," said Tony Clifford, Ernst & Young’s global IFRS financial instruments leader, as quoted by In Audit. "Hedge accounting will now be permitted for individual risk components of non-financial items, provided the entity can separately identify and reliably measure the risk component that is actually hedged."

The provision will be adopted early in 2013.