Page 83 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Hedge accounting

Hedge accounting introduction –

terminology

Hedging

Managing risk by designating one or more hedging instruments so that
any change in fair value or cash flows of a hedged item is offset (in
whole or in part) by the change in fair value of the hedging instrument.

Hedged item

A hedged item (IAS 39) can be any of the following:

 an asset, liability or firm commitment

 a highly probable forecast transaction

 the net investment in a foreign operation.

It must expose the entity to the risk of changes either:

 fair value, or

 future cash flows.

75