How banks and other financial institutions account for dynamic risk management activities in their financial statements is being retooled as the International Accounting Standards Board investigates new rules regarding macro hedging.
The IASB, the body which oversees the International Financial Reporting Standards, released last week a discussion paper on accounting for macro hedging. The goal is to come up with new rules that will “better reflect” the realities of macro hedging. According to IASB, many banks and other institutions manage interest rate risks and other risks dynamically on a portfolio basis, instead of on an individual contract basis. Because those risks and how they are managed change over time, that continuous process is difficult to account for under the current reporting rules, the IASB said.
