U.S. rule makers haven't studied the international plan for how to revamp hedge accounting for themselves, but they're intrigued enough to ask U.S. capital market players what they think of it.

The Financial Accounting Standards Board already has a hedge accounting plan of its own on the drawing board, contained in its highly contentious proposal for how to revise financial instrument accounting comprehensively. Now it is asking its U.S. constituents what they think of a different approach developed by the International Accounting Standards Board. The FASB issued the IASB proposal as a discussion paper asking U.S. stakeholders to consider it and comment on it.

FASB notes that IASB's proposal is different from its own and different from existing U.S. Generally Accepted Accounting Principles. The board said it wants to take the international idea into account as it decides what to do with its own hedge accounting proposal. IASB says its proposal is intended to align hedge accounting more closely with risk management practices since hedging strategies are meant to manage risk. The proposed model would establish a more objectives-based approach to hedge accounting, addressing inconsistencies and weaknesses in the existing model for hedge accounting.

FASB says the IASB model would expand the types of financial instruments that would be eligible to be designated as hedging instruments to include nonderivative financial assets and liabilities measured at fair value through earnings. It also would expand the types of items that could be designated as hedged items, so a company could arrive at an aggregated exposure that represents a combination of a risk exposure and a derivative and call it a hedge. Even further, it would allow groups of individually eligible hedged items to be hedged as a group if the individual items in the group are managed as such for risk management purposes.

Bob Uhl, a partner with Deloitte & Touche, says the IASB's proposal has generally gotten positive marks from those who use and follow International Financial Reporting Standards. “There are a lot of things in the IASB proposal that would expand the use of hedge accounting, and many constituents like that,” he says.

In the United States, FASB has been working on a new standard for hedge accounting since at least May 2007 when it opened a project to reconsider historical Financial Accounting Statement No. 133 on hedge accounting. The board acknowledged then that the United States needs a standard that is more transparent, more useful to investors and simpler for preparers to follow. The board issued its first proposal in 2008, then folded it into its current more comprehensive proposal on financial instruments.

FASB's latest proposal would eliminate some of the complexities that have made hedge accounting under GAAP problematic, and it would lower the bar for determining whether a hedge is effective, and therefore eligible for favorable hedge accounting treatment. The FASB said it will consider comments both on its discussion paper and the IASB proposal directly as it determines the path forward. The board is still working on a mid-2011 timetable to finalize its comprehensive standard on financial instruments, although it also has acknowledged there are many issues to resolve in a short time frame to achieve that objective.