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Perspectives

ASC 815 simplifies hedge accounting for consumer industry

New hedge accounting standard for derivatives and hedging

Hedge accounting was designed to let companies match their input purchases with an offsetting position to minimize the bottom-line impact. But hedge accounting has been notoriously complicated. To make derivatives and hedging simpler, the Financial Accounting Standards Board (FASB) issued new hedge accounting standard ASC 815, which is part of ASU 2017-12.

Making hedge accounting less complex

On August 28, 2017, FASB issued Accounting Standards Update (ASU) 2017-12, Derivatives and Hedging (Topic 815): “Targeted improvements to accounting for hedging activities.” The new standard allows entities to revisit their current hedge accounting strategies and better align accounting with risk management strategies.

The result is that the guidance on hedge accounting is considerably less complex than it was before. And with ASC 815 already going into effect for public entities, the vanguard is taking advantage. Gone are the days of having to forgo the benefits of hedge accounting and relying instead on non-GAAP (generally accepted accounting principles) information to convey the impact of a hedge.

Impact on the consumer industry

Consider these four examples of how the revised standard can play out across different consumer industry scenarios.

A new day for consumer companies

The goal of hedge accounting is to dampen the effect that hedging relationships have on a company’s P&L statement. With the introduction of ASC 815, hedge accounting is now simpler for companies across the consumer landscape to plan and execute.

The revised standard enables companies to devise new hedging strategies, enhance or improve existing strategies, and remove some complexity from the financial reporting process. Even so, some consumer companies may continue to struggle with hedge accounting’s legacy reputation as a process fraught with challenges and risk. With the four examples outlined here, we hope we have clarified the possibilities and encouraged reconsideration of a potentially beneficial accounting practice now made more accessible than ever.

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Rich Paul
Audit & Assurance Partner
Consumer Industry Leader
Transportation, Hospitality and Services Leader
Deloitte & Touche LLP
rpaul@deloitte.com
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Chris Monteilh
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Jonathan Howard
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Jonathan Rothman
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Deloitte & Touche LLP
jrothman@deloitte.com
+1 212 436 6580
Sam Loughry
Audit & Assurance Partner
Consumer Products Leader
Deloitte & Touche LLP
sloughry@deloitte.com
+1 214 840 1881

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The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

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