We could learn a lot from our friends in Canada who seem to have nailed both hedge accounting and International Finance Reporting Standards (IFRS) convergence. That's not the case in the U.S. where hedge accounting under FAS 133 has caused over 200 re-statements since it was implemented eight years ago. Now FASB is proposing FAS 133R in an effort to "simplify" the standard. (See Governance and Accounting on page 20-21)

Canada's Accounting Standards Board (AcSB) concluded that the standard's rules-based hedge accounting is flawed compared to the principles-based approach of International Accounting Standard (IAS) 39. The AcSB first phased in its hedge accounting standard, AcG-13, with documentation and assessments, but no measurement of ineffectiveness for fiscal years after October 2004, with measurements coming in 2007 via the Canadian Institute of Chartered Accountants (CICA) 3865. This gave everyone time to prepare and separated some of the complicated quantitative calculations from the upfront documentation work.

Although CICA 3865 follows FAS 133 closely, CICA has wisely decided to adopt IFRS in 2011, again allowing for ramp-up time. Meanwhile, U.S. companies are adopting FAS 157 this year and FAS 161 next year, and face possible adoption of FAS 133R in 2010. As if back-to-back implementation of three standards wasn't difficult enough, almost certain IFRS convergence would mean re-implementing derivatives accounting for a third time.