FASB Proposes Limited Improvements to Hedge Accounting Guidance

The FASB has issued a proposed Accounting Standards Update (ASU) that would make targeted improvements to the hedge accounting guidance in ASC 815. The proposal, which is being released in response to feedback on the Board’s January 2025 invitation to comment on its agenda consultation, is designed to simplify the hedge accounting guidance by better aligning it with “the economics of entities’ risk management strategies.” Specifically, under the proposal:

• Entities would be permitted, for held-to-maturity debt securities, to designate interest rate risk as the hedged risk, which is not allowed under current GAAP.
• The definition of secured overnight financing rate (SOFR) in the ASC master glossary and ASC 815 would be amended “so that the overnight index swap rate would no longer be the only SOFR-based rate included as a U.S. benchmark interest rate.”
• The criteria under which a “receive-variable-rate, pay-variable-rate cross-currency interest rate swap” would be eligible to be designated in a net investment hedge would be broadened, since an entity would be permitted to use different repricing intervals or dates for each leg of the swap, as opposed to the current requirement that the same intervals and dates be used.

Comments on the proposed ASU are due by August 17, 2026. For more information, see the press release on the FASB’s Web site.