FASB Proposed Changes Off Market Interest Rate Hedge Accounting


March 2017

The proposed guidance introduces a new way to deal with off-market hedging relationships. Companies with interest rate hedging programs hedging variable rate debt that are designated in off-market hedging relationships would be required to change the way they assess hedge effectiveness and measure and record any hedge ineffectiveness. While the new guidance provides the opportunity to perform ongoing effectiveness assessments on a qualitative basis when there have been no changes in the hedging relationship, it isn’t clear how practice would develop for off-market hedging relationships. It’s likely that companies with off-market relationships would continue to perform quantitative effectiveness assessments. Quantitative effectiveness testing would continue to be required at inception of the hedging relationship.

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