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Chapter 11

8.2 Choosing to hedge account

An entity that chooses to hedge account must document the following:

 The hedged item: the asset, liability, commitment or highly probable forecast
transaction that exposes the entity to fair value or cash flow changes

 The hedging instrument: the derivative whose fair value or cash flow changes
are expected to offset those of the hedged item

 The risk that the entity is hedging against

The entity must also document the type of hedge accounting that they will be using.
Two types of hedge accounting from IFRS 9 are examinable:

 A fair value hedge is to hedge movements in the fair value of a recognised
asset or liability or a firm commitment that could impact profit or loss (or OCI for
investments in equity designated as FVOCI).

 A cash flow hedge is to hedge movements in the cash flows associated with a
recognised item or a highly probable forecast transaction that could impact
profit or loss.

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