EFRAG consults on hedge accounting under IFRS 17

The European Financial Reporting Advisory Group (EFRAG) is running an outreach project to examine potential hedge accounting problems for IFRS reporters as part of its IFRS 17 endorsement project

As part of its ongoing endorsement activities for IFRS 17 Insurance Contracts, EFRAG is examining the interaction between IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement and IFRS 17 in terms of hedge accounting to establish the potential scope of problems for European insurers when they adopt the new standard.

The aim of the research is to assess the impact on reporters of changes to different hedge accounting treatment, including fair value, portfolio fair value hedge of interest rate risk, cashflow and net investment hedges.

EFRAG has produced a detailed technical questionnaire to assess current application and future concerns to gauge feedback from European insurers who will be affected by the potential clash between IFRS 9 and the new insurance standard, IFRS 17, when it comes into force in 2021.

Topics covered include current hedging strategy in terms of risk, type and instrument, use of IAS 39 hedge accounting excluding carve-out, application of hedge accounting carve-out for insurance activities and use of IFRS 9 hedge accounting requirements versus use of fair value portfolio hedge accounting under IAS 39.

Another area of focus is accounting mismatches in the application of IFRS 9 and IFRS 17 to those hedging strategies that fail hedge accounting, as well as economic mismatches in terms of application of the general measurement model versus variable fee approach under IFRS 17, taking into account the country where assets are held, currency and duration.

The questionnaire closes for comment on 15 September 2019. Responses to IFRS17Secretariat@efrag.org

Sara White

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