Today, FASB issued narrow-scope improvements to its financial instrument standards as part of Accounting Standards Update (“ASU”) 2019-04. Included in the ASU are codification improvements related to ASU 2017-12, Derivatives and Hedging (Topic 815), involving some key issues raised on the application of the new fair value hedging guidance:
Measurement of the hedged item in a partial-term hedge of both interest rate and foreign exchange risk may use the assumed term of the hedge.
Multiple partial-term hedges may be designated against a single financial instrument.
The assumed maturity date of the hedge is to be used when amortizing fair value hedge basis adjustments.
Clarification that fair value hedge basis adjustments related to foreign exchange risk should be excluded from disclosures under ASC 815-10-50-4EE.
The ASU also provides updates related to Not-for-Profit Entities and Private Companies, as well as clarification that the first-payments-received technique for hedges of changes in overall cash flows continues to be permitted.
Among its outstanding narrow-scope projects are similar questions involving fair value hedges using the Last of Layer Method, and whether it is permissible to assign hedges to multiple layers of a single closed portfolio of prepayable financial instruments.