The IASB has issued IFRS 9 Hedge Accounting, the third phase of its replacement of IAS 39. The new requirements establish a more principles-based approach, align hedge accounting more closely with risk management and remove many of the restrictions that prevented some economic hedging strategies from qualifying as accounting hedges. Under the model, among other things, entities are able to designate (subject to meeting certain criteria) risk components of both financial and non-financial items at fair value through other comprehensive income. IFRS 9 makes hedging of groups of items more flexible, although it does not cover macro hedging (this is the subject of a separate IASB discussion paper). IFRS 9 relaxes the rules on the use of some hedging instruments, such as non-derivative financial instruments accounted for at fair value, purchased options and forward contracts.
The assessment of hedge effectiveness is still required at inception and on an ongoing basis; however, the rules for assessing effectiveness have been relaxed and the assessment will only be forward-looking.
The accounting and presentation requirements for hedge accounting in IAS 39 remain largely unchanged in IFRS 9. However, entities will now be required to reclassify the gains and losses accumulated in equity on a cash flow hedge to the carrying amount of a non-financial hedged item when it is initially recognized. This was permitted under IAS 39, but entities could also choose to accumulate gains and losses in equity.
Disclosures about the effects of hedge accounting are now required in one comprehensive note to the financial statements. Hedge accounting continues to be an accounting choice and designation of hedging relationships along with supporting documentation is still required.
The changes mean more of hedging strategies will qualify for hedge accounting and for those who had abandoned hedge accounting because of the constraints in the current rules, there will now be an opportunity to reconsider and potentially qualify under less onerous requirements.