Practical guide on general hedge accounting Dec 2013 | Page 8
Practical guide
3. Qualifying criteria for hedge
accounting
An entity’s risk management strategy is central to the objective of hedge accounting under IFRS 9. However,
hedge accounting is still seen as an exception to the normal accounting rules, and therefore, some restrictions
are still necessary to determine whether or not a proposed hedging relationship qualifies for hedge accounting.
As a result, an entity is only allowed to apply hedge accounting if it meets the specified qualifying criteria.
A comparison of the qualifying criteria in IAS 39 as against IFRS 9 is summarised in the following table, and
detailed further below:
IAS 39
Formal designation and documentation of:
Formal designation and documentation of:
Risk management objective and strategy
Risk management objective and strategy
Hedging instrument
Hedging instrument
Hedged item
Hedged item
Nature of risk being hedged
Nature of risk being hedged
3.1
IFRS 9
Hedge effectiveness
Hedge effectiveness (including sources of
ineffectiveness and how the hedge ratio is
determined)
3.2
Hedging relationship consists only of eligible
hedging instruments and eligible hedged items.
The general requirement remains unchanged.
However, some items that were not eligible as
hedged items or hedging instruments under IAS 39
are now eligible under IFRS 9 (refer to sections
4 and 5 below).
3.3
Hedge effectiveness requirements:
Hedge effectiveness requirements (prospective):
Effectiveness can be reliably measured
Economic relationship exists
Hedge is expected to be highly effective
(prospective testing)
Credit risk does not dominate value changes
Hedge is assessed on an on-going basis and
determined actually to have been highly
effective (retrospective testing 80%-125%).
Designated hedge ratio is consistent with risk
management strategy.
3.4
Voluntary discontinuation of hedge accounting
is allowed.
General hedge accounting
Discontinuation of hedge accounting only under
specified circumstances.
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