IFRS 9 Hedge accounting content

The new hedge accounting model aims to provide greater cohesion between an entity’s risk management strategy, their objectives for entering into hedging transactions and relationships, and the final impact of hedging on their financial statements. Improved disclosures are provided with the new model regarding the effect of hedge accounting on an entity’s financial statements and risk management strategy as well as details about derivatives entered into and their impact on an entity’s future cash flows.

Risk management strategy and areas to cover are: a) Whether the hedge accounting documentation sufficiently links each individual hedging relationship and the related risk management objective. b) Whether the hedged item is transaction-related or time period-related. c) Whether the hedge effectiveness criteria are met, and d) When rebalancing versus discontinuation of a hedging relationship is appropriate.

There are three types of hedges: a) Cash flow hedges; b) Fair value hedges; and c) Hedges of net investments in self-sustaining foreign operations.

IFRS 9 requires that an entity assess at the inception of the hedging relationship, and on an ongoing basis, whether it expects the hedge to be effective. At a minimum, entities are required to perform this ongoing and forward-looking assessment at the earliest of: a) Each reporting date; or b) When a significant change in circumstances that could affect the hedging relationship’s ability to meet the hedge effectiveness criteria occurs.

More complex hedges and the related IFRS 9 requirements are: Aggregated Exposures as a Hedged Item, Hedging Groups of Items, Hedging a Component of an Item, Accounting for the Time Value, and Designating a Credit Exposure at FVTPL

IFRS 9 Hedge accounting content

Introduction

Overview hedge accounting

What is moneyness in the valuation of options?

Objective and scope of hedge accounting

Objective of hedge accounting

Hedging instruments

Hedging instruments

 

Hedging itemsIFRS 9 Hedge accounting content

General requirements

Hedges of exposures affecting Other comprehensive income

Aggregated exposures

Risk components

Components of a nominal amount

Groups of items

Credit risk exposures

Qualifying criteria for hedge accounting

Example: Hedge of forecast foreign currency purchases

Example: Light Sweet Crude Oil commodity swap

Hedge accounting of hedges for commodity risks

Accounting for qualifying hedging relationships

Qualifying criteria – Designation

Economic relationship

Impact of credit risk

Setting the hedge ratio

Designating proxy hedges

Subsequent assessment of effectiveness

Discontinuation

Measuring ineffectiveness

Presentation

Cash flow hedges

Fair value hedges

Hedges of groups of items

Hedge accounting: statements of cash flows

Disclosures

Risk management strategy

The amount, timing and uncertainty of future cash flows

The effects of hedge accounting on the financial position and performance

Miscellaneous

Other changes from IAS 39:

 

IFRS 9 Hedge accounting content IFRS 9 Hedge accounting content IFRS 9 Hedge accounting content IFRS 9 Hedge accounting content IFRS 9 Hedge accounting content