FASB Proposed Changes Effectiveness Testing


March 2017

The new guidance would allow companies to perform more qualitative effectiveness assessments, thereby eliminating some of the challenges with performing quantitative effectiveness assessments. For hedges that do not qualify for either the shortcut or critical terms match methods, a quantitative effectiveness assessment would be required at the inception of each hedging relationship to demonstrate that it is “highly effective.” However, for ongoing effectiveness testing, the proposed guidance would allow a company to qualitatively assess that hedges would continue to be highly effective as long as there have been no changes in the hedging relationship.

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