»Ê¹ÚÌåÓýapp

Change in election approach

»Ê¹ÚÌåÓýapp election approach was changed in December 2014. »Ê¹ÚÌåÓýappre were previously four separate elections that could be made, each with slightly different effects. »Ê¹ÚÌåÓýapp amendments made in 2014 changed to make ‘following profit or loss the default treatment and streamlines the existing permutation into a single election into regulations 7, 8 and 9. »Ê¹ÚÌåÓýapp new rules apply for periods of account commencing on or after 1 January 2015.

Previous approach (elect-out) � periods of account commencing before 1 January 2015

»Ê¹ÚÌåÓýapp previous default position was that the Disregard Regulations would apply automatically to derivatives which were part of a hedging relationship. »Ê¹ÚÌåÓýapp type of contract would determine whether regulation 7, 8 or 9 applied, for example a currency contract would be dealt with by regulation 7.

If the company did not want the Regulations to apply, they could make an irrevocable election to opt-out of regulation 7, 8 or 9 and, in certain cases, apply regulation 9A instead. Regulation 9A would essentially follow the amounts shown in the accounts instead, meaning detailed computations were not necessary. »Ê¹ÚÌåÓýapp effect of the election was also disapplied in particular cases (which depended on the particular election made).

Current approach (elect-in) � periods of account commencing on or after 1 January 2015

»Ê¹ÚÌåÓýapp default position going forwards is that the ‘follow the accountsâ€� approach will apply. This broadly means companies will be able to follow the amounts recognised in profit or loss.

If companies want to disregard fair value movements, they can make an election to opt-in to regulation 7, 8 and 9 of the Disregard Regulations. This means regulation 7, 8 and 9 will have effect (where the relevant conditions are satisfied) and computational adjustments will be necessary. »Ê¹ÚÌåÓýapp election can specify which of regulations 7, 8 or 9 are to be applied.

»Ê¹ÚÌåÓýapp company will be locked into a particular approach for an initial period (normally three years). »Ê¹ÚÌåÓýappreafter the company will have the option of revising its election position, which will apply prospectively for new derivatives moving forwards.

Companies previously applying fair value accounting

If a company already holds derivatives which are accounted for at fair value and which would fall under regulations 7, 8 or 9 of the Disregard Regulations, the existing treatment is grandfathered without them having to do anything. »Ê¹ÚÌåÓýapp company will now also have the option of revising its election position, which will apply prospectively for new derivatives moving forwards.