Hedge accounting: Simplifying the accounting for hedging activities

Deloitte Dbriefs:
Hedge accounting: Simplifying the accounting for hedging activities
October 9, 2018

Copyright © 2018 Deloitte Development LLC. All rights reserved. 2
On May 22, 2018, Deloitte conducted a special edition Dbriefs webcast titled, “Hedge
accounting: Simplifying the accounting for hedging activities,” and polled more than 3,000
business professionals about their organizations’ implementation plans for the new hedge
accounting rules issued by the Financial Accounting Standards Board (FASB), Accounting
Standards Update 2017-12 Derivatives and Hedging (Topic 815) Targeted Improvements to
Accounting for Hedging Activities (ASU 2017-12).
Most respondents work in accounting (54.3 percent), finance (19.4 percent), tax (8.8
percent) and audit (3.7 percent).
The following slides highlight the findings from the Dbriefs poll questions. Answer rates
differed by question. Insights are provided by Jon Howard, Audit & Assurance senior
consultation partner for hedge accounting, Deloitte & Touche LLP, and Bill Fellows, partner,
Deloitte Risk and Financial Advisory, Deloitte & Touche LLP.
Overview

Key Data Point:
Nearly one-third of respondents indicated their
organization hardly uses hedge accounting.
Deloitte Insight:
“Historically, companies have often been hesitant to
utilize hedging strategies because of the complexities.
The new standard removes many of these barriers,
making it much easier for companies to achieve
hedge accounting.” – Jon Howard, Audit & Assurance
senior consultation partner for hedge accounting,
Deloitte & Touche LLP
Note: 25.2 percent responded Don't know / Not
applicable to this question
Votes received: 3192
Poll question: How would you describe your organization’s current
use (or prior to adoption of ASU 2017-12) of hedge accounting?
Data totals for certain questions may not equal 100 percent due to the rounding of raw data to the nearest tenth of a percentage.
11.3%
31.0%
32.6%
Extensive users Moderate users Hardly use hedge
accounting

Key Data Point:
Only 20 percent of respondents indicated their
organization has either already adopted or plans
to adopt ASU 2017-12 prior to January 1, 2019.
Deloitte Insight:
“In considering whether to adopt the new hedge
accounting standard and determining the adoption
timeline, companies should keep in mind the potential
risk management benefits. The standard can help
companies minimize volatility within financial
statements and enhance predictability in their
earnings statements. This represents an opportunity
that companies should consider taking full advantage
of.” – Bill Fellows, partner, Deloitte Risk and Financial
Advisory, Deloitte & Touche LLP
Note: 47.3 percent responded Don't know / Not
applicable to this question
Votes received: 3,330
Poll question: When does your organization expect to have ASU
2017-12 implemented?
10.9%
9.7%
32.1%
Already adopted -
either by the end of
Q1 2018 or in 2017
In Q2-Q4 of 2018 In 2019 (or by the
effective date)

Key Data Point:
Respondents did not indicate one primary
expected benefit but instead were relatively split
among three benefits.
Deloitte Insight:
“The relatively even split between the top-rated three
expected benefits of the new standard illustrate why
companies should be paying attention: greater choice
with respect to hedge accounting alternatives,
decreased costs of compliance, and better alignment
with real world hedging strategies.” – Bill Fellows,
partner, Deloitte Risk & Financial Advisory, Deloitte &
Touche LLP
Note: 34.8 percent reported Don't know / Not
applicable and 11.5 percent responded Other to this
question
Poll question: What do you expect will be the biggest benefit to
your organization in adopting the new standard?
17.4%
18.0%
18.4%
Better alignment with
current risk
management
Decreased operational
burden
Opportunities related
to adoption of new
hedge accounting
strategies

Key Data Point:
Respondents indicated several obstacles
preventing implementation of the new hedge
accounting standard. Obstacles included
education about using hedging strategies,
navigating gray areas of the new standard, and
the ability to efficiently review existing hedging
strategies.
Deloitte Insight:
“Clearly, more education and experience are needed.
FASB has significantly simplified the process, but
companies need to take the initiative. There are a
number of external resources that companies can
access to help jump-start the process. Make no
mistake: this is a good update to a standard that has
potential long-term benefits for a company.” – Jon
Howard, Audit & Assurance senior consultation partner
for hedge accounting, Deloitte & Touche LLP
Note: 28.8 percent reported Don't know / Not
applicable and 9.3 percent responded Other to this
question
Poll question: What do you expect will be the biggest obstacle to
implementation?
21.0%
20.2%
20.7%
Developing an efficient
process for reviewing
existing hedging
instruments, strategies
and contracts across the
organization and
evaluating them against
the new standard
Navigating the gray
areas of the standard,
such as how to hedge
assets without
contractually-specified
terms
Education - (for
example, this is my
organization's first time
using hedging strategies
and there is a significant
learning curve)

Jon Howard, Audit & Assurance partner, Deloitte &
Touche LLP is Deloitte’s senior consultation partner for
hedge accounting.
“The new hedge accounting standard is one of the
more interesting FASB updates in recent years – many
companies are actually excited to implement it
because it streamlines related practices and the
financial reporting is more consistent. However,
implementation is not without obstacles. As we consult
with companies, we want to help executives
understand the tangible value of hedge accounting and
the substantial impact it can have on reducing
volatility in the financial statements for their
organizations.” – Jon Howard, Audit & Assurance
senior consultation partner for hedge accounting,
Deloitte & Touche LLP
Meet Jon Howard

Bill Fellows is a Deloitte Risk and Financial Advisory
partner, Deloitte & Touche LLP. He specializes in
financial instruments and transactions valuation,
accounting and risk management. Bill leads Deloitte’s
derivatives & hedging advisory services.
“ASU 2017-12 is a standard that has a lot to offer
companies in all industries. Applying hedge accounting
for existing strategies should become much simpler for
some issuers and hedge accounting may be available
for other strategies where it was effectively prohibited
before. For example, entities that issue variable rate
debt often decide to hedge some of the exposure to
increasing interest rates through the use of interest
rate swaps. Many companies will find their quarterly
activities much simplified under the new standard.
Businesses that use commodities in their operations
often use derivatives to hedge against the risk of
changes in the price of that commodity to protect their
margins. In the past, achieving hedge accounting was
a challenge, but many companies should find relief
under ASU 2017-12.” – Bill Fellows, partner Deloitte
Risk and Financial Advisory, Deloitte & Touche LLP
Meet Bill Fellows

About Deloitte
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Contact
Daniel Mucisko
Public Relations
Deloitte Services LP
dmucisko@deloitte.com
Shelley Pfaendler
Public Relations
Deloitte Services LP
spfaendler@deloitte.com
The statements in this report reflect the aggregation of poll responses and are not intended to reflect facts or opinions of any
entities. All data, charts and statistics referenced and presented, as well as the representations made and opinions expressed,
unless specifically described otherwise, pertain only to the participants and their responses to the Deloitte poll. The information
obtained during the poll was taken “as is” and was not validated or confirmed by Deloitte.
This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting,
business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such
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