Hedging with purchased options

Clear IFRS 9 Fair value hedge accounting – The fair value hedge is one of three hedges defined in IFRS 9, the others are the cash flow hedge and the hedge of a net investment.

Hedge accounting can bring a number of advantages over traditional accounting methods. The core benefit is that by addressing the timings mismatch associated with standard derivative accounting, hedge accounting removes temporary volatility from the P&L. As a result, the financial statements will better reflect the company’s true economic performance.

Reducing the volatility in earnings results in a number of additional benefits:

• Enterprise value. Earnings volatility is negatively perceived by investors.
• Creditworthiness. Predictability in future earnings is a positive factor in creditworthiness.
• Risk