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Exposure Draft of the Novation of Derivatives and Continuation of Hedge Accounting (Amendments to Ind AS 39) (Comments to be received by February 21, 2014).
January, 24th 2014
             Exposure Draft


        Novation of Derivatives
                  and
   Continuation of Hedge Accounting
      (Amendments to Ind AS 39)




(Last date for Comments: February 21, 2014)




                 Issued by
        Accounting Standards Board
                  The Institute of Chartered Accountants of India

                                                               Exposure Draft
                Novation of Derivatives and Continuation of Hedge Accounting
                                 (Amendments to Ind AS 39)

 Following is the Exposure Draft of Novation of Derivatives and Continuation of Hedge
Accounting(Amendments to Ind AS 39) issued by the Accounting Standards Board of The
Institute of Chartered Accountants of India, for comments. The Board invites comments on any
specific aspect of the Exposure Draft. Comments are most helpful if they indicate the specific
paragraph or group of paragraphs to which they relate, contain a clear rationale and, where
applicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to the Secretary, Accounting Standards Board, The
Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
Marg, New Delhi 110 002, so as to be received not later than February 21, 2014 . Comments
can also be sent by email to commentsasb@icai.in  or asb@icai.in

(This Exposure Draft of the Indian Accounting Standard includes paragraphs set in bold type
and plain type, which have equal authority. Paragraphs in bold type indicate the main
principles. This Exposure Draft of the Indian Accounting Standard should be read in the context
of its objective and the Preface to the Statements of Accounting Standards1)






Paragraphs 91 and 101 are amended. New text is underlined and deleted text is struck
through.

Fair value hedges

...

91         An entity shall discontinue prospectively the hedge accounting specified in paragraph
           89 if:

       (a)       the hedging instrument expires or is sold, terminated or exercised. (fFor this
                 purpose, the replacement or rollover of a hedging instrument into another hedging
                 instrument is not an expiration or termination if such replacement or rollover is
                 part of the entity's documented hedging strategy);. Additionally, for this purpose
                 there is not an expiration or termination of the hedging instrument if:

                                                            
1
 Attention is specifically drawn to paragraph 4.3 of the Preface, according to which accounting standards
are intended to apply only to items which are material.
             (i)    as a consequence of laws or regulations or the introduction of laws or
                    regulations, the parties to the hedging instrument agree that one or more
                    clearing counterparties replace their original counterparty to become the
                    new counterparty to each of the parties. For this purpose, a clearing
                    counterparty is a central counterparty (sometimes called a `clearing
                    organisation' or `clearing agency') or an entity or entities, for example, a
                    clearing member of a clearing organisation or a client of a clearing member
                    of a clearing organisation, that are acting as counterparty in order to effect
                    clearing by a central counterparty. However, when the parties to the hedging
                    instrument replace their original counterparties with different counterparties
                    this paragraph shall apply only if each of those parties effects clearing with
                    the same central counterparty.

             (ii)   other changes, if any, to the hedging instrument are limited to those that are
                    necessary to effect such a replacement of the counterparty. Such changes are
                    limited to those that are consistent with the terms that would be expected if
                    the hedging instrument were originally cleared with the clearing
                    counterparty. These changes include changes in the collateral requirements,
                    rights to offset receivables and payables balances, and charges levied.


      (b)           ...

      ...

Cash flow hedges
...

101         In any of the following circumstances an entity shall discontinue prospectively the
            hedge accounting specified in paragraphs 95­100:




      (a) The hedging instrument expires or is sold, terminated or exercised (for this
          purpose, the replacement or rollover of a hedging instrument into another hedging
          instrument is not an expiration or termination if such replacement or rollover is
          part of the entity's documented hedging strategy). In this case, the cumulative gain
          or loss on the hedging instrument that has been recognised in other comprehensive
          income from the period when the hedge was effective (see paragraph 95(a)) shall
          remain separately in equity until the forecast transaction occurs. When the
          transaction occurs, paragraph 97, 98 or 100 applies. For the purpose of this
          subparagraph, the replacement or rollover of a hedging instrument into another
          hedging instrument is not an expiration or termination if such replacement or
          rollover is part of the entity's documented hedging strategy. Additionally, for the
          purpose of this subparagraph there is not an expiration or termination of the
          hedging instrument if:
      (i)         as a consequence of laws or regulations or the introduction of laws or
                  regulations, the parties to the hedging instrument agree that one or more
                  clearing counterparties replace their original counterparty to become the
                  new counterparty to each of the parties. For this purpose, a clearing
                  counterparty is a central counterparty (sometimes called a `clearing
                  organisation' or `clearing agency') or an entity or entities, for example, a
                  clearing member of a clearing organisation or a client of a clearing member
                  of a clearing organisation, that are acting as counterparty in order to effect
                  clearing by a central counterparty. However, when the parties to the
                  hedging instrument replace their original counterparties with different
                  counterparties this paragraph shall apply only if each of those parties
                  effects clearing with the same central counterparty.

      (ii)        other changes, if any, to the hedging instrument are limited to those that are
                  necessary to effect such a replacement of the counterparty. Such changes
                  are limited to those that are consistent with the terms that would be
                  expected if the hedging instrument were originally cleared with the clearing
                  counterparty. These changes include changes in the collateral requirements,
                  rights to offset receivables and payables balances, and charges levied.



(b)         ...
      In Appendix A, paragraph AG113A is added.




Assessing hedge effectiveness
...

AG113A For the avoidance of doubt, the effects of replacing the original counterparty with a
       clearing counterparty and making the associated changes as described in paragraphs
       91(a)(ii) and 101(a)(ii) shall be reflected in the measurement of the hedging
       instrument and therefore in the assessment of hedge effectiveness and the
       measurement of hedge effectiveness.

 
 
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