ACT Derivatives Accounting Group (DAWG) Response to ASB on FRED23 - Financial Instruments: Hedge Accounting

The Accounting Standards Board

August 9, 2002

Re: The Association of Corporate Treasurers (‘ACT’) response to the Accounting Standards Board on FRED23 - Financial Instruments: Hedge Accounting

Further to our proposal of suggested amendments to IAS39 submitted on 30 November 2001, the ACT Derivatives Accounting Working Group (‘DAWG’) has developed a response to the issues raised within FRED23. We have included a list of the DAWG members in Appendix 1. Our response detailed in Appendix 2 has been prepared by the DAWG and approved by the ACT Technical Committee. Whilst our response has been endorsed by many of our members, we cannot be certain that it would be representative of the views of the entire membership of the ACT.

We have responded to questions 1 – 7 in the questionnaire, however we would suggest a simpler approach to assist the implementation:

1. For listed companies we believe that FRED23 will only really serve to bring forward the effective date for implementation of IAS39 by approximately 6 months. Therefore, we would propose that FRED23 is not applied and companies move towards IAS39 in accordance with the European timetable rather than that proposed by FRED23. A requirement to apply FRED 23, closely followed by IAS 39, with the possibility of two restatements, could have a damaging effect on perceptions of the accounting profession.
2. For unlisted companies we do not believe that FRED23 should be implemented due to the asymmetry in the accounting for hedges, which results. We would propose that unlisted companies should meet certain criteria around the hedge documentation, hedge relationship and hedge effectiveness, however the accounting should remain in line with UK GAAP until UK company law changes. Therefore, the model should be consistent with the current method of accounting for hedging activities.

We hope that you find our comments useful and constructive and thank you for having given us the opportunity to comment on this subject. If you wish to discuss further any of the issues raised in our response please contact our technical department at technical@treasurers.org.

Yours sincerely

Jon Boyle
Chairman of the Technical Committee

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