Letter to FASB on Proposed Derivatives and Hedging Standards

August 13, 2026

Technical Director,
File Reference No. 2026-ED200
FASB
801 Main Avenue
PO Box 5116
Norwalk, CT 06856-5116

RE: Proposed Accounting Standards Update Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Interest Rate Risk Hedging and Net Investment Hedging

Dear FASEB:

The Virginia Society of CPAs (VSCPA) Accounting & Auditing Advisory Committee has reviewed the Exposure Draft (ED) — Proposed Accounting Standards Update Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Interest Rate Risk Hedging and Net Investment Hedging, issued by the Financial Accounting Standards Board (FASB). The VSCPA is the leading professional association in Virginia dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. The VSCPA membership consists of nearly 11,000 individual members who actively work in public accounting, private industry, government, and education.

Question 1 — Hedging Interest Rate Risk for HTM Debt Securities

We support the proposed amendments permitting interest rate risk to be designated as the hedged risk for HTM debt securities. We recognize that the amendments will reduce the earnings mismatch that currently exists when an economic hedge does not qualify for hedge accounting. However, we believe that recognizing the offsetting effects of a qualifying hedging relationship more faithfully reflects the economics of the entity’s risk management activities rather than creating artificial earnings volatility. We believe the amendments are clear, operable, and auditable. We also believe it is important that financial statement users retain sufficient transparency into the derivative gains and losses and related hedge basis adjustments associated with HTM securities. Accordingly, we encourage FASB to consider whether existing Topic 815 disclosures provide sufficient visibility into those amounts. We further recommend that FASB clarify that designation of interest rate risk in a qualifying hedge, by itself, does not call into question an entity’s intent and ability to hold the underlying security to maturity.

Question 2 — SOFR Benchmark Interest Rate

We support the proposed amendments permitting any qualifying tenor of SOFR to be considered a benchmark interest rate. The amendments better reflect current market practice, reduce unnecessary complexity, and allow hedge accounting to more closely align with an entity’s risk management activities. We believe the existing requirement that benchmark rates be widely used and quoted provides an appropriate safeguard.

Question 3 — Float-to-Float Cross-Currency Swaps

We support the proposed amendments permitting float-to-float cross-currency swaps with different reset dates to qualify as hedging instruments in net investment hedges. We also support the requirement that repricing occur at least every six months. We believe this provides a clear and operable threshold while appropriately limiting interest rate risk within the hedging relationship.

Question 4 — Transition

We support prospective transition and believe the proposed transition disclosures are appropriate and decision-useful. We recommend that FASB clarify whether existing SOFR-based hedging relationships may be modified to reflect the expanded benchmark rate guidance without requiring dedesignation and redesignation when the entity’s underlying risk management objective has not changed.

Question 5 — Effective Date

We recommend providing public business entities with approximately one year to implement the amendments following issuance of the final Update. Entities other than public business entities should be provided an additional year because they may have fewer internal technical accounting resources and may require additional time to update policies, controls, systems, and hedge documentation. Early adoption should continue to be permitted.

Question 6 — Benefits and Costs

We believe the expected benefits of the proposed amendments justify the expected costs. While entities may incur one-time costs related to policies, controls, documentation, systems, and training, as well as modest recurring costs related to hedge administration and effectiveness assessments, those costs should generally be limited because the amendments expand the application of the existing hedge accounting model rather than introduce a new model. Entities also may incur incremental costs to ensure that financial statement disclosures and related controls provide appropriate transparency regarding newly qualifying HTM hedging relationships and associated hedge basis adjustments. We believe those costs are justified by the resulting improvement in the alignment of financial reporting with risk management activities.

The VSCPA appreciates the opportunity to respond to this ED. Please direct any questions or concerns to VSCPA Vice President, Advocacy & Pipeline Emily Walker, CAE, at ewalker@vscpa.com or (804) 612- 9428.

Sincerely,

Elissa Obillo, CPA
Chair 2026-2027
VSCPA Accounting & Auditing Advisory Committee

VSCPA Accounting & Auditing Advisory Committee 2026-2027

Elisa Obillo, CPA — Chair
Domenic Savini, CPA — Vice Chair
Scott Cohen, CPA
Jonathan Head, CPA
Clarissa Hoffman, CPA
Joshua Keene, CPA
Daniel Martin, CPA
John McIntosh, CPA
Kendra Morgan, CPA
Brook Peterson, CPA
Michael Phillips, CPA
Amy Stokes, CPA
Clara Tang, CPA
Charles Valadez, CPA
Anna Wagner, CPA
Patrick Wunderlich, CPA
Natalya Yashina, CPA