Page 86 - F3 Integrated Workbook STUDENT 2019

Chapter 4

Hedge accounting rules

2.1 Conditions for hedge accounting (IFRS 9)

Initial arrangement

Designated as a hedge at inception.

Formal documentation identifying:

 hedged item

 hedge instrument

 nature of risk that is to be hedged

 hedge effectiveness (including sources of ineffectiveness and how
the hedge ratio is determined)

Also, for a cash flow hedge – see details later in this chapter – the
future cash flow needs to be assessed as highly likely.

Effectiveness

Formerly, under IAS 39, the effectiveness had to be quantified - highly
effective was between 80% – 125%.

Under IFRS 9, effectiveness does not have to be quantified, but the
hedge documentation should state how the entity will assess whether
the hedging relationship meets hedge effectiveness requirements.

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