Hedge accounting 

The IASB's exposure draft on hedging changes the focus of hedge accounting away from stringent rules to a more principles based approach which seeks to align accounting with companies’ risk management policies.          
Overall this change in approach brings with it new hedge accounting opportunities due to a relaxation in the qualifying criteria for hedged items and hedging instruments. It is therefore anticipated that a number of economic hedge arrangements that failed to meet hedge accounting criteria under IAS 39 would be acceptable under the proposals in the exposure draft.

The IASB has split the hedge accounting phase into two parts: general hedging and macro hedging. In September 2012, the IASB issued a review draft of its forthcoming IFRS on general hedge accounting. A discussion paper on macro hedging model is scheduled for the first half of 2013.          

Overview of the exposure draft          

Broadened scope: Fewer restrictions will mean more ‘economic’ hedges will qualify for hedge accounting. Hedge accounting will be more aligned with risk management, placing risk management policy documentation at the centre of the requirements.          

Hedging instruments: Non-derivative financial assets or liabilities measured at fair value through profit or loss may be designated as hedging instruments in their entirety when hedging relationships of any risk, not only foreign currency risk (as per current IAS 39 rules).   

Hedged items: Certain risk components of non-financial items may be designated as hedged items. In addition, an aggregate exposure comprising a derivative and a non-derivative may be designated as a hedged item, if managed as a single exposure.       

Effectiveness testing: Retrospective effectiveness testing would no longer be required. Provided there is an ongoing expectation of more than a reasonable degree of offset then hedge accounting would continue.          
Discontinuation: Voluntary discontinuation of hedge accounting would be prohibited. 



Practical Issues          

Management should:          

  • Review and refresh risk management policy documentation and strategies.          
  • Consider whether to apply hedge accounting to relationships not permissible under current accounting rules.          
  • Consider whether systems and processes can adequately support the enhanced hedging opportunities.          
  • Be aware that voluntary de-designation of hedge accounting would no longer be permissible under the proposals.          

IFRS Publications          


Aura Giurcaneanu

Aura Giurcaneanu

Partner, Head of Audit and Assurance

+40 (744) 655 847

Angela Manolache

Angela Manolache

Advisory, Director

+40 (372) 377 800

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