Practical guide on general hedge accounting Dec 2013 | Page 16

Practical guide

4. What can be designated as
hedging instruments?
There have not been many changes to the hedging instruments that are eligible under IFRS 9. Most derivative
financial instruments can still be designated as hedging instruments, provided they are entered into with an
external party. Intra-group derivatives do not qualify as hedging instruments in consolidated financial
statements, although they might qualify in the separate financial statements of individual entities in the group.
Additional guidance from IAS 39 (such as allowing the designation of a proportion of a derivative instrument in
a hedge relationship) is included in IFRS 9.
The main changes to hedging instruments in IFRS 9 are: how to account for the time value of options; the
interest element of forward contracts; and the currency basis of cross-currency swaps when used as
hedging instruments.
An overview of the main differences for hedging instruments between IAS 39 and IFRS 9 is summarised in the
table below. A detailed explanation of each of the main changes included in the table is given in the paragraphs
that follow.
IAS 39

IFRS 9

4.1

Derivatives.

Unchanged.

4.2

Non-derivative financial instruments are only
allowed for hedging FX risk.

Non-derivative financial instruments continue to be
allowed for hedging FX risk.
In addition, if non-derivative financial instruments
are measured at fair value through P&L they are
also allowed for hedging risks other than FX risk.

4.3

Embedded derivatives allowed as hedging
instruments.

Derivatives embedded in financial assets are no
longer accounted for separately under IFRS 9.
Therefore, only derivatives embedded in financial
liabilities or non-financial contracts (that are
accounted for separately) are allowed to be
designated as hedging instruments.

4.4

Changes in the time value of an option are
recognised in P&L.

Changes in the aligned time value of an option are
deferred in O
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