IAS 39 Financial Instruments - Recognition and Measurement - Hedging Forecast Transactions with Derivatives of Shorter Maturity
Status:
In July 2006, the IFRIC asked for the Board’s views on the principles to be applied in identifying a portion of a hedged item’s cash flows or fair value that is eligible for hedge accounting. The Board acknowledged that further guidance on what qualifies as a hedged portion under IAS 39 was needed and, in December 2006, decided that an amendment to IAS 39 should be developed. The Board agreed that this amendment should be developed by the Board rather than the IFRIC. This issue is therefore no longer considered to be part of the IFRIC’s active agenda. Further details on the Board’s work on portions can be obtained by clicking here.
Summary of the issue:
The IFRIC has received a request to interpret the requirements of IAS 39 with respect to cash flow hedging of highly probable forecast transactions. In particular, the IFRIC has been asked whether it is possible to designate a hedging relationship in such a way as to achieve a fully effective hedge when the hedging derivative matures before the forecast transaction.
The resolution of this issue depends upon whether certain cash flows associated with the forecast transaction can be designated as a hedged portion in accordance with paragraph 81 of IAS 39.
Latest progress on the issue:
The IFRIC has received a number of submissions asking whether the risks associated with a specific portion of an exposure might qualify for hedge accounting. Consequently, the IFRIC explored this issue together with two other related questions (Whether Inflation Risks Qualify as Separable Components for Hedging Purposes and Hedging of Future Cash Flows by an Option).
At its meeting in July 2006, the IFRIC asked the staff to refer these issues to the Board. At its October meeting, the Board decided to amend IAS 39 to provide additional guidance on what can be designated as a hedged portion of a financial instrument under IAS 39.
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Discussed by the Board:
Staff contact: