Presentation – Cash flow hedges

The general mechanics of how ongoing cash flow hedges are presented does not change compared with IAS 39. Entities would continue to accumulate in the hedging reserve (i.e., in equity, now in the standard called ‘cash flow hedge reserve’) the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item. This is often referred to as the ‘lower-of-test’ and basically assures that, in line with the IASB’s Conceptual Framework, an entity is not recognising an asset or liability that does not exist.

IFRS 9 is stricter than IAS 39 as to how the amount accumulated in the hedging reserve is subsequently accounted for, Read more

Presentation – Fair value hedges

A fair value hedge is used when an entity is looking to eliminate or reduce the exposure that arises from changes in the fair value of a financial asset or liability (or other eligible exposure) due to changes in a particular risk, such as interest rate risk on a fixed rate debt instrument. The hedged item is permitted to be measured at fair value each period in respect of the hedged risk (not for all risks), even if the hedged item is normally measured at amortized cost. Any resulting adjustment to the carrying amount of the hedged item related to the hedged risk is recognized in profit or loss, even if such a change normally would be recognized … Read more

Presentation – Hedges of groups of items

Cash flow hedges

When designating a group of items in a cash flow hedge, the presentation of the related hedging gains or losses in the statement of profit or loss depends on the nature of the group position.

Note that the designation of a net position cash flow hedge is only permitted when hedging foreign currency risk (see ‘Cash flow hedge of a net position‘).

The above requirement for net position cash flow hedges might not seem very attractive, as the presentation of the hedged transactions would not reflect the effect of the hedge. However, the Board was concerned that grossing-up the hedging gain or loss would result in non-existing gains or losses being recognised in the statement Read more

Disclosures – Risk management strategy

The risk management strategy has to be described by type of risk, and this description has to include how each risk arises and how, and to what extent, the risk is managed. This description must also include whether the entity hedges only a part of the risk exposure, such as a nominal component or selected contractual cash flows. To satisfy this requirement, an entity must disclose:

  • The hedging instruments and how they are used to hedge the risk exposure
  • Why the entity believes there is an economic relationship between the hedged item and the hedging instrument
  • How the hedge ratio is determined
  • The expected sources of ineffectiveness

When only a component of a risk exposure is hedged, an entity must Read more

Disclosures – Future cash flows

The amount, timing and uncertainty of future cash flows Disclosures – Future cash flows

Further to the strategy, entities have to disclose the ‘terms and conditions of hedging instruments and how they affect the amount, timing and uncertainty of future cash flows’. More precisely, an entity has to disclose, by category of risk:

  • A profile of the timing of the nominal amount of the hedging instrument Disclosures – Future cash flows
  • If applicable, the average price or rate of the hedging instrument, which could be a strike price or a forward rate Disclosures – Future cash flows

Entities also have to disclose a description of the sources of hedge ineffectiveness that are expected to affect the hedging relationship during Read more

Disclosures – Hedges – Financial position

Disclosures – The Disclosures – Hedges – Financial position – Performance on the financial position and performance

IFRS 7 sets out a specific requirement to disclose the effect hedge accounting has on the entity’s financial position and the performance. All disclosures are required in a tabular format and by type of risk.

Instead of reproducing the specific requirements of IFRS 7 we provide examples below of how those disclosures might look.

IFRS 7 further requires a reconciliation of the components in equity that arise in connection with hedge accounting (such as the hedging reserve) and an analysis of OCI. That information needs to be disaggregated by risk category, which can be done in the notes.

Disclosure requirements of

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