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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