Practical guide on general hedge accounting Dec 2013 | Page 23

Practical guide

5.4.

Hedging layers of a group

IAS 39 allowed hedging layers of a group in very limited circumstances (for example, in specified cash flow
hedges). IFRS 9 allows a layer of a group to be designated as the hedged item. A layer component can be
specified from a defined, but open, population or from a defined nominal amount. Examples include:


A part of a monetary transaction volume (such as the next CU10 cash flows from sales denominated in a
foreign currency after the first CU20 in March 201X);



A part of a physical or other transaction volume (such as the first 100 barrels of the oil purchases in June
201X, or the first 100 MWh of electricity sales in June 201X); or



A layer of the nominal amount of the hedged item (such as the last CU80 million of a CU100 million firm
commitment, or the bottom layer of CU20 million of a CU100 million fixed rate bond, where the defined
nominal amount is CU100 million).

If a layer component is designated in a fair value hedge, an entity must specify it from a defined nominal
amount. To comply with the requirements for qualifying fair value hedges, an entity must remeasure the
hedged item for fair value changes attributable to the hedged risk. The fair value adjustment must be recognised
in P&L no later than when the item is derecognised. Therefore, it is necessary to track the item to which the fair
value hedge adjustment relates. Entities are required to track the nominal amount from which the layer is
defined in order to track the designated layer (for example, the total defined amount of CU100 million sales
must be tracked in order to track the bottom layer of CU20 million sales or the top layer of CU30 million sales).
A layer of a contract that includes a prepayment option (if the fair value of the prepayment option is affected by
changes in the hedged risk) is only eligible as a hedged item in a fair value hedge if the layer includes the effec