By Steve BurkholderA majority of the Financial Accounting Standards Board appears inclined to ease what can be detailed requirements for companies to document hedging set-ups, which generally hinge on the use of derivatives.At a May 27 board meeting, four members of FASB suggested they would favor changing hedge documentation prescriptions in the board's hedge accounting rules, Accounting Standards Codification 815, Derivatives and Hedging.More specifically, a majority of the seven-member board spoke in favor of allowing some leeway in timing for a required completion of “the initial quantitative prospective assessment.” In that assessment, a hedging instrument—typically a derivative—would be gauged for how effective it would be in countering changes in prices or values of an item being hedged.At least one FASB member also suggested he is “leaning heavily to the qualitative side” in calling for simpler documentation by a company of how a hedging derivative was intended to work.The recording of the what, how and why in hedging structures must be accomplished at the start of a hedging relationship between a hedging tool and hedged item.FASB instituted the detailed hedging documentation rules in ASC 815, formerly Financial Accounting Statement 133, to curb earnings management through, for example, “cherry-picking” of gains among instruments by way of possible after-the-fact declarations.Fewer Restrictions for Nonfinancial Items The panel debated May 27 how hedge accounting rules might be changed, potentially to include lessening restrictions on hedge accounting for nonfinancial items. It was the latest in a series of meetings at which the board didn't make standard-setting decisions.If transactions qualify for hedge accounting, current generally accepted accounting principles allow for deferrals of gains and losses in hitting income statements.FASB plans to hold one more education-only meeting—a major one, set for July 1—to precede what would be a linchpin decision-making meeting on potential hedge accounting changes.At the final non-decision-making meeting, the board expects to pull together complicated threads of potential approaches and models for how to proceed on revising current hedge accounting rules, if FASB chooses that path.Following that meeting by three or four weeks, the board would then be asked to make formal decisions on where it would like to land in prescribing changes...