Appendix A — Comparison of U.S. GAAP and IFRS Standards | DART

Under U.S. GAAP, the primary sources of guidance on derivative instruments and hedge accounting are ASC 815-20, ASC 815-25, ASC 815-30, and ASC 815-35. Under IFRS Accounting Standards, the primary sources of such guidance are paragraphs 6.1.1 through 6.6.6 and B6.2.1 through B6.6.16 of IFRS 9. Other sources of hedge accounting guidance in IFRS Accounting Standards include the illustrative examples in IFRS 9 and Section G of “Guidance on Implementing IFRS 9 (2014) Financial Instruments.”

This appendix focuses on comparing the requirements for hedge accounting in U.S. GAAP and IFRS Accounting Standards. The guidance in both sets of standards addresses measuring certain hedging instruments at fair value and, for fair value hedge accounting, measuring hedged items at a fair-value-adjusted amount. For a discussion of the key differences between U.S. GAAP and IFRS Accounting Standards regarding fair value measurement, see Appendix B of Deloitte’s Roadmap Fair Value Measurements and Disclosures (Including the Fair Value Option).

Both U.S. GAAP and IFRS Accounting Standards have general requirements for hedge accounting as well as additional requirements for specific types of hedging relationships (i.e., fair value or cash flow hedges, including foreign currency hedges, or hedges of a net investment in a foreign operation). This appendix includes both general and type-specific requirements. However, it does not discuss all the differences between the hedging guidance in U.S. GAAP and IFRS Accounting Standards. For example, the guidance in U.S. GAAP is significantly more detailed than that in IFRS Accounting Standards on some issues that are highly technical and not broad-based; this appendix does not address such differences.

Note also that this appendix highlights substantive differences between U.S. GAAP and IFRS Accounting Standards that exist as of the date of the publication of this Roadmap. Both the FASB and the IASB have projects under consideration that ultimately may affect the information in this section.

The table below summarizes key differences between U.S. GAAP and IFRS Accounting Standards related to the accounting for hedges.

Subject	U.S. GAAP (ASC 815)	IFRS Accounting Standards (IFRS 9)
Guidance Applicable to All Hedges
“Highly effective” threshold to qualify for hedge accounting	The hedging instrument must be highly effective at offsetting changes in fair value or cash flows (see Section 2.5).	The concept of a highly effective threshold does not exist; instead, IFRS 9 requires that (1) there is an economic relationship between the hedging instrument and the hedged item, (2) credit risk does not dominate the value changes that result from the economic relationship, and (3) the hedging relationship’s hedge ratio reflects the hedge ratio of the actual quantities of the hedging instrument and the hedged item (see paragraph 6.4.1(c) of IFRS 9).
Quantitative assessment of hedge effectiveness	Entities are generally required to perform an initial prospective quantitative hedge effectiveness assessment; however, if certain criteria are met, they can elect to subsequently perform prospective and retrospective effectiveness assessments qualitatively unless facts and circumstances change (see Section 2.5.2.2).	IFRS Accounting Standards do not specify a method for assessing effectiveness. Entities are required to make ongoing qualitative or quantitative assessments (at a minimum on each reporting date) (see paragraphs B6.4.12 and B6.4.13 of IFRS 9).
Hedge documentation and initial prospective quantitative hedge effectiveness assessment	Entities must complete most hedge documentation at hedge inception; however, they generally do not need to complete the initial prospective quantitative hedge effectiveness assessment until the first quarterly hedge effectiveness assessment date (i.e., up to three months), although earlier completion may be required in some circumstances. Private companies that are not financial institutions and certain not-for-profit entities do not need to perform and document the initial and subsequent quarterly effectiveness assessments until the date the next interim (if applicable) or annual financial statements are available to be issued (however, these entities must document certain aspects of the hedging relationship at hedge inception) (see Section 2.6.1).	Entities are required to complete all documentation at hedge inception (see paragraph 6.4.1(b) of IFRS 9).
Income statement presentation	Entities are required to present the change in the hedging instrument’s fair value in the same income statement line item(s) as the earnings effect of the hedged item (not including any changes in fair value that are excluded from the effectiveness assessments of net investment hedges, for which no specific income statement presentation is prescribed). In addition, no presentation is prescribed for amounts released from AOCI when it is probable that a hedged forecasted transaction will not occur (see Section 6.3).	IFRS Accounting Standards do not prescribe income statement presentation of hedging results. Time value components that are not designated as part of the hedging instrument will generally be initially deferred in OCI and not recognized in current earnings (see paragraph 6.5.15(b) of IFRS 9).
Voluntary dedesignation of a hedging relationship	Entities may voluntarily discontinue hedge accounting at any time by removing the designation of the hedging relationship (see Sections 3.5.1.3, 4.1.5.1.3, and 5.4.3).	Entities may perform dedesignation only when a hedging relationship (or a part of a hedging relationship) ceases to meet the qualifying criteria (see paragraphs B6.5.22 and B6.5.23 of IFRS 9).
Shortcut method	The shortcut method is permitted for hedging relationships involving an interest rate swap and an interest-bearing financial instrument that meet specific requirements. If an entity elects the shortcut method and later determines that it was not or is no longer appropriate, it can apply the long-haul method as long as: The entity documented at hedge inception the quantitative method it would use to assess hedge effectiveness and measure hedging results if the shortcut method could not be applied. The hedge was highly effective for the periods in which the shortcut method criteria were not met. The qualifying criteria also enable partial-term fair value hedges to qualify for shortcut accounting (see Section 2.5.2.2.1).	The shortcut method is not permitted.
Accounting for amounts excluded from the hedge effectiveness assessment	Entities amortize the initial value of an excluded component into earnings over the life of the hedging instrument by using a systematic and rational method. In subsequent periods, they recognize in OCI (as a CTA for net investment hedges) any difference between the change in fair value of the excluded component and amounts recognized in earnings under that systematic and rational method. All excluded component amounts (other than those related to net investment hedges) are recognized in the same income statement line item as the earnings effect of the hedged item. Alternatively, an entity can elect to apply a mark-to-market through earnings approach in a manner consistent with preadoption guidance (see Section 2.5.2.1.2.1).	The change in the fair value of the excluded component is initially recognized in OCI to the extent that it is related to the hedged item and is accumulated in a separate component of equity. The subsequent accounting depends on whether (1) it has been determined that the hedged item is transaction-related or time-period related and (2) the hedged item will result in the recognition of a nonfinancial asset or liability. IFRS 9 generally does not prescribe where such amounts should be recognized in the income statement (i.e., other than amounts that are recognized as basis adjustments to nonfinancial assets or liabilities) (see paragraphs 6.5.15 and 6.5.16 of IFRS 9).
Guidance Applicable Only to Cash Flow Hedges
Measurement and recognition of hedge ineffectiveness — cash flow hedges	If the relationship between the hedged item and hedging instrument is highly effective at offsetting changes in the cash flows attributable to the hedged risk, an entity should record in OCI the entire change in the designated hedging instrument’s fair value that is included in the hedge effectiveness assessment (see Section 4.1).	Entities are required to measure and recognize hedge ineffectiveness (other than that arising from cumulative cash flow underhedges) in each reporting period (see paragraph 6.5.11(c) of IFRS 9).
Ability to designate a component of a forecasted purchase or sale of a nonfinancial asset as a hedged item	Under ASU 2017-12, entities are permitted to designate the “risk of variability in cash flows attributable to changes in a contractually specified component” as the hedged risk in a cash flow hedge of a forecasted purchase or sale of a nonfinancial asset, if the hedge meets certain criteria (see Section 2.3.2.1).	Entities may designate nonfinancial components as hedged items under the principle that a component may be designated as a hedged item if it is separately identifiable and reliably measurable. There is no requirement that the component be contractually specified (see paragraph 6.3.7 of IFRS 9).
Hedges of interest rate risk for variable-rate financial instruments	Entities may designate the contractually specified interest rate as the hedged risk. The concept of benchmark interest rate hedging is not available for existing variable-rate financial instruments (see Sections 2.3.1.1 and 4.2.1.1).	Entities may designate components that are separately identifiable and reliably measurable (see paragraph 6.3.7 of IFRS 9).
Application of critical-terms-match method to a cash flow hedge of a group of forecasted transactions	Entities may use the critical-terms-match method when hedging the cash flows of a group of forecasted transactions if (1) those transactions occur within the same 31-day period or the same fiscal month in which the hedging derivative matures and (2) all other method requirements are met (see Section 2.5.2.2.2).	No formal approach exists; however, entities may be able to qualitatively assess hedge effectiveness when the critical terms of the hedging instrument match those of the hedged item (see paragraph B6.4.14 of IFRS 9).
Guidance Applicable Only to Fair Value Hedges
Eligible benchmark interest rates	The following are considered to be the benchmark interest rates: interest rates on direct Treasury obligations of the U.S. government, the LIBOR swap rate, the OIS Rate, SIFMA Municipal Swap Rate, and the SOFR OIS rate (see Section 2.3.1.1).	Entities may designate components that are separately identifiable and reliably measurable (see paragraph 6.3.7 of IFRS 9).
Partial-term fair value hedges of interest rate risk	Entities may designate a partial term hedge by assuming that (1) the term of the hedged item begins with the first hedged cash flow and ends when the last hedged cash flow is due and payable and (2) the hedged item matures on the date on which the last hedged cash flow is due and payable (see Section 3.2.1.1).	Entities may perform partial term hedging (see paragraph 6.3.7 of IFRS 9).
Measuring the change in the fair value of a hedged prepayable instrument (e.g., callable debt)	Entities are allowed to consider only how changes in the benchmark interest rate (as opposed to how all variables, such as interest rate, credit, and liquidity factors) would affect the exercise of the call or put option when assessing hedge effectiveness and measuring the change in fair value of the debt attributable to changes in the benchmark interest rate (see Section 3.2.1.2).	IFRS Accounting Standards do not provide specific guidance; however, for a layer component containing a prepayment option to be eligible for fair value hedging, entities must include the changes in the prepayment option’s fair value that are attributable to changes in the hedged risk when measuring the change in the hedged item’s fair value (see paragraph B6.3.20 of IFRS 9).
Measuring the change in the fair value of the hedged item attributable to the change in the benchmark interest rate in a fair value hedge of interest rate risk	Entities are permitted to use either the benchmark rate component of contractual coupon cash flows or the full contractual coupon cash flows when calculating the change in the hedged item’s fair value (see Section 3.2.1 and Example 3-1).	Entities may designate the benchmark interest rate cash flows as the hedged item if they are separately identifiable and reliably measurable; however, a designated benchmark component of the cash flows must be less than or equal to the total cash flows of the entire item (see paragraphs 6.3.7 and B6.3.23 of IFRS 9).
Fair value hedges of interest rate risk in a closed portfolio of prepayable financial instruments or a beneficial interest in a portfolio of prepayable financial instruments	Because of the interplay between (1) the election for partial-term fair value hedges and (2) the election to measure the hedged item’s fair value by using the benchmark rate component of its contractual coupon cash flows, entities are able to hedge the fair value of a portion of a closed portfolio of prepayable assets without having to consider prepayment risk or credit risk when assessing hedge effectiveness and measuring hedging results. An entity can also apply the method to one or more beneficial interest(s) (e.g., an MBS) in a closed portfolio of prepayable financial instruments (see Section 3.2.1.4).	IFRS Accounting Standards do not include a model for fair value hedges of the interest rate risk of an open (or closed) portfolio of financial assets or liabilities.

Appendix A — Comparison of U.S. GAAP and IFRS Accounting Standards