Sandra Thompson
Senior Project
Manager
International
Accounting Standards Board
30 Cannon Street
London
EC4M 6XH
Dear Ms Thompson
RE: IAS 39,
Financial Instruments: Recognition and Measurement Fair Value Hedge
Accounting for
a Portfolio Hedge of Interest Rate Risk
We have read with
interest the above Exposure Draft and would like to make the following
comments.
We welcome the
decision of the Board to address the issues of accounting for
macro-
hedging. The
Exposure Draft is a step in the right direction of bringing hedge accounting
requirements
closer into line with actual risk management strategies.
However, we
believe there remains significant unresolved issues, particularly the inability
to hedge a net position and the arbitrary restriction of
hedge accounting to certain types of
item. We are also
concerned at the recent Board proposal to remove the proposed
extension of
prospective hedge effectiveness and return to
its earlier more restrictive
proposal.
Question 1
Current hedge accounting rules under IAS 39 do not allow an
entity to aggregate dissimilar
risks in a
portfolio of instruments that are then designated as the hedged item in hedging
relationship.
Those rules additionally preclude an entity from netting offsetting
contractual
positions to determine a net exposure amount, which is then designated as the
hedged item in a
hedging relationship. However, we understand that the proposed
Exposure Draft
would allow financial institutions and others with contracts containing
interest rate
risk to combine those positions and designate the net exposure as the hedged
item in a fair
value hedge relationship. We believe certain
energy commodity contracts
(including firm
commitments) and anticipated commodity transactions present an entity
with a risk
profile that is similar to the exposure that an entity has relative to interest
rate-
sensitive
instruments and is consistent with the rationale put forward to support interest
rate portfolio
hedging. We therefore believe that the extension of hedge accounting