Dataline: Accounting for hedging activities - IASB new general hedge accounting requirements (No. 2014-03)

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Dataline / In depth 01/30/2014 by Assurance services
Dataline: Accounting for hedging activities - IASB new general hedge accounting requirements (No. 2014-03)

At a glance

This Dataline highlights key provisions of the IASB's new guidance.

The amendment to IFRS 9 addresses inconsistencies and limitations in the current IFRS hedge accounting model in several ways. It replaces today’s 80% to 125% bright line test and introduces ‘hedge ratio’ based on the quantity of the hedged item and hedging instrument. It allows risk components of non-financial items to be designated as hedged items. Aggregated exposures that include derivatives can also be hedged items. The time value of options, the forward element of a forward contract and currency basis spreads arising from foreign currency interest-rate derivatives can be addressed in a manner that minimizes volatility in the income statement. The new guidance has removed the previous mandatory effective date of January 1, 2015, but the standard is available for immediate application. The standard provides an accounting policy choice for an entity to continue to apply hedge accounting (and hedge accounting only) under IAS 39 instead of IFRS 9 until the IASB completes its separate macro hedging project.

This Dataline highlights key provisions of the IASB's new guidance.