IASB publishes proposals for amendments to IAS 39 Financial Instruments: Recognition and Measurement Novation of derivatives and continuation of hedge accounting

 28 February 2013

The International Accounting Standards Board (IASB) today published for public comment an Exposure Draft of proposed amendments to IAS 39 Financial Instruments: Recognition and Measurement. Corresponding requirements are proposed to be included in the forthcoming hedge accounting chapter in IFRS 9 Financial Instruments.

The objective of the proposed amendments is to introduce a narrow scope exception to the requirement for the discontinuation of hedge accounting in IAS 39.  Specifically, they propose an exception when a derivative that has been designated as a hedging instrument, is novated from one counterparty to a central counterparty (CCP), as a consequence of new laws or regulations if specific conditions are met (in this context, novation of the derivative contract is the substitution of the original counterparty to the contract for a new counterparty, being a CCP).

The IASB considered the fact that the legislative changes that would require such novation of derivatives would be widespread across jurisdictions.  These legislative changes were prompted by a G20 commitment to improve transparency and regulatory oversight of over-the-counter derivatives in an internationally consistent and non-discriminatory way.

The IASB is aware that these new laws or regulations could come into effect in some jurisdictions very soon.  Consequently the IASB has published this Exposure Draft with a short (30-day) comment period.

The Exposure Draft can be accessed via the project website or on the ‘Comment on a proposal´ page on www.ifrs.org The IASB requests comments on the Exposure Draft by 2 April 2013.