Hedge accounting simplification proposed in UK


By Ken Tysiac

Reducing complexity for small businesses is a focal point of a new hedge accounting proposal released Friday by the UK Financial Reporting Council (FRC).

Principles recently agreed upon by the International Accounting Standards Board (IASB) for hedge accounting are the basis for the proposal, according to Melanie McLaren, executive director of codes and standards for the FRC.

“But we have taken a practical approach and made a number of simplifications,” McLaren said in a news release. “We were mindful that smaller, less complex businesses also enter into arrangements to hedge financial risks, and hedge accounting should be as accessible as possible to all types of businesses, large and small.”

The amendments would take effect on January 1st 2015, the same day that the new, comprehensive UK GAAP financial reporting regime takes effect. Comments can be submitted by email to ukfrs@frc.org.uk through February 14th.

An additional FRC proposal released Friday would change Actuarial Standard Technical Memorandum 1 (AS TM1) to reflect changes introduced by new pension disclosure regulations that affect Statutory Money Purchase Illustrations (SMPIs).

The amendments would allow pension providers to provide more personalised illustrations to pension-scheme members in their annual statements beginning April 6th 2014.

Regulations published on October 31st consolidate and amend some of the requirements for disclosing information to pension-scheme members, introducing additional options for the disclosures. The requirements include changes to information presented in SMPIs, and the FRC is proposing changes to AS TM1 to enable presentations that allow:

  • Cash lump sums to be taken out before the calculation of the illustrated pension;
  • Varying percentages of dependants’ pension to be assumed; and
  • Different levels of pension increases to be assumed.

Comments can be sent by email to TM1@frc.org.uk by December 13th.

Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.