The Securities and Exchange Commission has given some new–but so far informal–guidance on how it wants companies to assess the effectiveness of hedge transactions to ensure that they qualify for favorable, highly complex derivative accounting treatment.
At a recent meeting of the Emerging Issues Task Force of the Financial Accounting Standards Board, Joe McGrath, a professional accounting fellow for the SEC’s Office of the Chief Accountant, told the EITF that the SEC will see its way clear to accepting effective but imperfect hedges as long as companies have done a quantitative analysis to support their assertion that a particular hedge is highly effective.
