Overview

The Accounting Standard AASB 2008-8 Amendments to Australian Accounting Standards – Eligible Hedged Items, enacted in August 2008, is an amendment to AASB 139 Financial Instruments: Recognition and Measurement. This legislation was introduced to address the need for clarification on the application of hedge accounting principles in specific situations, particularly concerning the designation of hedged items. The amendments were necessitated by the issuance of similar amendments by the International Accounting Standards Board (IASB) in July 2008, which prompted the Australian Accounting Standards Board (AASB) to update Australian standards to align with international practices while addressing local concerns. The Australian Parliament, through the AASB, issued Exposure Draft ED 158 in October 2007 to gather feedback on the proposed changes, leading to the final standard that clarifies the eligibility of hedged items, effective from annual reporting periods beginning on or after 1 July 2009, with early adoption permitted from 1 January 2005.

Scope and Application

The AASB 2008-8 Amendments to Australian Accounting Standards – Eligible Hedged Items applies to entities that prepare financial reports in accordance with Australian Accounting Standards, specifically those that adopt AASB 139 Financial Instruments: Recognition and Measurement. These amendments clarify the criteria for designating risks or portions of cash flows as eligible hedged items, which is relevant for entities engaged in hedging activities to manage financial risks. The amendments apply to annual reporting periods beginning on or after 1 July 2009, with the option for early adoption in periods starting from 1 January 2005. The amendments do not explicitly state any exclusions or exemptions, and their application is intended to be comprehensive across all entities subject to AASB 139, with no indication of geographic or jurisdictional limitations beyond the application of Australian Accounting Standards. The amendments extend the application of AASB 139 by clarifying certain principles without introducing new substantive requirements.

Key Provisions

The Accounting Standard AASB 2008-8, titled "Amendments to Australian Accounting Standards – Eligible Hedged Items," amends AASB 139 Financial Instruments: Recognition and Measurement. This amendment is in response to the International Accounting Standards Board's (IASB) changes to IAS 39 Financial Instruments: Recognition and Measurement, issued in July 2008. The amendments aim to clarify the application of principles determining the eligibility of hedged risks or cash flows for designation as hedged items in specific situations (AASB 2008-8, Application Date). The new standard applies to annual reporting periods starting on or after 1 July 2009, although earlier adoption is permitted for periods beginning on or after 1 January 2005 but before 1 July 2009 (AASB 2008-8, Application Date). The primary requirement of AASB 2008-8 is to provide clarity on how the principles governing the eligibility of hedged risks or portions of cash flows for designation as hedged items should be applied in certain circumstances (AASB 2008-8, Main Requirements). This involves refining the criteria to ensure that the accounting treatment of hedges is consistent and that the hedged items are appropriately designated and measured. The amendment seeks to address potential ambiguities that could arise in the application of hedge accounting principles, thereby enhancing the reliability and relevance of financial reporting. The Australian Accounting Standards Board (AASB) issued Exposure Draft ED 158 Proposed Amendments to AASB 139 Financial Instruments: Recognition and Measurement – Exposures Qualifying for Hedge Accounting in October 2007. ED 158 reproduced the IASB proposals without amendment and invited comments from Australian stakeholders. The AASB received six submissions that generally supported the need for clarity in the application of hedge accounting principles but raised concerns about the rules-based approach of the IASB proposals, which could lead to practical application problems. In its submission to the IASB, the AASB expressed significant concerns and suggested alternative approaches to alleviate these issues. The IASB subsequently addressed these concerns and made changes to the proposals in issuing its final Standard (AASB 2008-8, Consultation Prior to Issuing AASB 2008-8). There are no specific offences, penalties, or civil/criminal consequences outlined in the explanatory statement for breaches of AASB 2008-8. The amendment primarily focuses on clarifying accounting standards and does not introduce new regulatory requirements or sanctions. However, entities failing to comply with the new standards could face scrutiny from financial regulators and auditors, potentially leading to restatements of financial reports or other corrective actions to ensure compliance with accounting standards.