Contents
INTERNATIONAL ACCOUNTING STANDARD 39
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
SCOPE
2
DEFINITIONS
8
HEDGING
71
Hedging instruments
72
Hedged items
78
Hedge accounting
85
Temporary exceptions from applying specific hedge accounting requirements
102A
Additional temporary exceptions arising from interest rate benchmark reform
102P
EFFECTIVE DATE AND TRANSITION
103
WITHDRAWAL OF OTHER PRONOUNCEMENTS
109
APPENDICES
A Application guidance
B Amendments to other pronouncements
APPROVAL BY THE BOARD OF AMENDMENTS TO IAS 39:
Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk
issued in March 2004
Transition and Initial Recognition of Financial Assets and Financial Liabilities
issued in December 2004
Cash Flow Hedge Accounting of Forecast Intragroup Transactions
issued in April 2005
Financial Guarantee Contracts
(Amendments to IAS 39 and IFRS 4) issued in August 2005
Eligible Hedged Items
issued in July 2008
Embedded Derivatives
(Amendments to IFRIC 9 and IAS 39) issued in March 2009
1
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39) issued in June 2013
Financial Instruments
(Hedge Accounting and Amendments to IFRS 9, IFRS 7 and IAS 39) issued in November 2013
Interest Rate Benchmark Reform
issued in September 2019
Interest Rate Benchmark Reform—Phase 2
issued in August 2020
FOR THE ACCOMPANYING GUIDANCE LISTED BELOW, SEE PART B OF THIS EDITION
ILLUSTRATIVE EXAMPLE
IMPLEMENTATION GUIDANCE
FOR THE BASIS FOR CONCLUSIONS, SEE PART C OF THIS EDITION
BASIS FOR CONCLUSIONS
DISSENTING OPINIONS
International Accounting Standard 39
Financial Instruments: Recognition and Measurement
(IAS 39) is set out in
paragraphs 2–110
and
Appendices A
and B
. All the paragraphs have equal authority but retain the IASC format of the Standard when it was adopted by the IASB. IAS 39 should be read in the context of its objective and the
Basis for Conclusions
, the
Preface to IFRS Accounting Standards
and the
Conceptual Framework for Financial Reporting
.
Basis of Preparation of Financial Statements
provides a basis for selecting and applying accounting policies in the absence of explicit guidance.
[
Refer:
IAS 8 paragraphs 10–12
]
International Accounting Standard 39
Financial Instruments: Recognition and Measurement
1
[Deleted]
Scope
2
This Standard shall be applied by all entities to all financial instruments within the scope of
Financial Instruments
if, and to the extent that:
(a)
IFRS 9 permits the hedge accounting requirements of this Standard to be applied; and
[
Refer:
IFRS 9 paragraphs 6.1.3
and
7.2.21
]
(b)
the financial instrument is part of a hedging relationship that qualifies for hedge accounting in accordance with this Standard.
[
Refer:
paragraphs 71–84
]
2A–7
[Deleted]
Definitions
8
The terms defined in
,
and
are used in this Standard with the meanings specified in
Appendix A of IFRS 13
,
Appendix A of IFRS 9
and
paragraph 11 of IAS 32
. IFRS 13, IFRS 9 and IAS 32 define the following terms:
amortised cost of a financial asset or financial liability
[
Refer:
IFRS 9 Appendix A
]
derecognition
[
Refer:
IFRS 9 Appendix A
]
derivative
[
Refer:
IFRS 9 Appendix A
]
effective interest method
[
Refer:
IFRS 9 Appendix A
]
effective interest rate
[
Refer:
IFRS 9 Appendix A
]
equity instrument
[
Refer:
IAS 32 paragraph 11
]
fair value
[
Refer:
]
financial asset
[
Refer:
IAS 32 paragraph 11
]
financial instrument
[
Refer:
IAS 32 paragraph 11
]
financial liability
[
Refer:
IAS 32 paragraph 11
]
and provide guidance on applying those definitions.
9
The following terms are used in this Standard with the meanings specified:
Definitions relating to hedge accounting
A
firm commitment
is a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
A
forecast transaction
is an uncommitted but anticipated future transaction.
A
hedging instrument
is a designated
derivative
or (for a hedge of the risk of changes in foreign currency exchange rates only) a designated non‑derivative
financial asset
or non‑derivative
financial liability
whose
fair value
or cash flows are expected to offset changes in the
fair value
or cash flows of a designated
hedged item
(
paragraphs 72–77
and
Appendix A paragraphs AG94–AG97
elaborate on the definition of a hedging instrument).
A
hedged item
is an asset, liability,
firm commitment
, highly probable
forecast transaction
or net investment in a foreign operation that (a) exposes the entity to risk of changes in
fair value
or future cash flows and (b) is designated as being hedged (
paragraphs 78–84
and
Appendix A paragraphs AG98–AG101
elaborate on the definition of hedged items).
Hedge effectiveness
is the degree to which changes in the
fair value
or cash flows of the
hedged item
that are attributable to a hedged risk are offset by changes in the
fair value
or cash flows of the
hedging instrument
(see
Appendix A paragraphs AG105–AG113A
).
10–70
[Deleted]
Hedging
71
If an entity applies
and has not chosen as its accounting policy to continue to apply the hedge accounting requirements of this Standard (see
paragraph 7.2.21 of IFRS 9
), it shall apply the hedge accounting requirements in
Chapter 6 of IFRS 9
. However, for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities, an entity may, in accordance with
paragraph 6.1.3 of IFRS 9
, apply the hedge accounting requirements in this Standard instead of those in IFRS 9. In that case the entity must also apply the specific requirements for fair value hedge accounting for a portfolio hedge of interest rate risk (see
paragraphs 81A
,
89A
and
AG114–AG132
).
Hedging instruments
Qualifying instruments
72
This Standard does not restrict the circumstances in which a
derivative
may be designated as a
hedging instrument
provided the conditions in
paragraph 88
are met, except for some written options (see
Appendix A paragraph AG94
). However, a non‑derivative
financial asset
or non‑derivative
financial liability
may be designated as a hedging instrument only for a hedge of a foreign
currency risk
.
[
Refer:
paragraph AG95
]
[
Link to
paragraph AG97
for other items that cannot be designated as hedging instruments]
73
For hedge accounting purposes, only instruments that involve a party external to the reporting entity (ie external to the group or individual entity that is being reported on) can be designated as
hedging instruments
. Although individual entities within a consolidated group or divisions within an entity may enter into hedging transactions with other entities within the group or divisions within the entity, any such intragroup transactions are eliminated on consolidation. Therefore, such hedging transactions do not qualify for hedge accounting in the consolidated financial statements of the group. However, they may qualify for hedge accounting in the individual or separate financial statements of individual entities within the group provided that they are external to the individual entity that is being reported on.
[
Refer:
Basis for Conclusions paragraphs BC165–BC172A
]
Designation of hedging instruments
74
There is normally a single fair value measure for a
hedging instrument
in its entirety, and the factors that cause changes in
fair value
are co‑dependent. Thus, a hedging relationship is designated by an entity for a hedging instrument in its entirety. The only exceptions permitted are:
E1
(a)
separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the change in intrinsic value of an option and excluding change in its time value; and
(b)
separating the interest element and the spot price of a forward contract.
These exceptions are permitted because the intrinsic value of the option and the premium on the forward can generally be measured separately. A dynamic hedging strategy that assesses both the intrinsic value and time value of an option contract can qualify for hedge accounting.
E1
[IFRIC®
Update
, March 2007, Agenda Decision, ‘IAS 39
Financial Instruments: Recognition and Measurement
—Assessing hedge effectiveness of an interest rate swap in a cash flow hedge’
The IFRIC was asked whether, when an entity designates an interest rate swap as a hedging instrument in a cash flow hedge, the entity is allowed to consider only the undiscounted changes in cash flows of the hedging instrument and the hedged item in assessing hedge effectiveness for hedge qualification purposes.
The IFRIC noted that when an interest rate swap is designated as a hedging instrument, a reason for ineffectiveness is the mismatch of the timing of interest payments or receipts of the swap and the hedged item. To take into account the timing of cash flows from interest payments or receipts in assessing hedge effectiveness, entities need also to take into account the time value of money.
IAS 39 states that ineffectiveness arises when the principal terms of the hedged item do not match perfectly with those of the hedging instrument (see paragraph AG108 of IAS 39). The IFRIC observed that a consequence of a comparison between changes in undiscounted cash flows of an interest rate swap and changes in undiscounted cash flows of the hedged item for assessing hedge effectiveness is that only a portion of the movements in fair value of the swap is taken into account. The IFRIC noted that such a method for assessing hedge effectiveness would not meet the requirements in IAS 39. IAS 39 paragraph 74 does not allow the bifurcation of the fair value of a derivative hedging instrument for hedge designation purposes, unless the derivative hedging instrument is an option or a forward contract. The only exceptions permitted in IAS 39 paragraph 74 are separating the intrinsic value and time value of an option and separating the interest element and the spot price of a forward contract.
In the light of the above requirements in IFRSs, the IFRIC did not expect significant diversity in practice in the application of those requirements. The IFRIC therefore decided not to add the issue to the agenda.]
75
A proportion of the entire
hedging instrument
, such as 50 per cent of the notional amount, may be designated as the hedging instrument in a hedging relationship. However, a hedging relationship may not be designated for only a portion of the time period during which a hedging instrument remains outstanding.
[
Refer:
Illustrative Examples paragraph IE20
]
76
A single
hedging instrument
may be designated as a hedge of more than one type of risk provided that (a) the risks hedged can be identified clearly; (b) the
effectiveness of the hedge
can be demonstrated;
E2,
E3
and (c) it is possible to ensure that there is specific designation of the hedging instrument and different risk positions.
E2
[IFRIC®
Update
, July 2007, Agenda Decision, ‘IAS 39
Financial Instruments: Recognition and Measurement
—Hedging multiple risks with a single derivative hedging instrument’
The IFRIC was asked to provide guidance on how an entity should apply the requirements of paragraph 76(b) of IAS 39 to demonstrate hedge effectiveness when it designates a single derivative hedging instrument as a hedge of more than one type of risk.
The answer to Question F.1.13 of the Guidance on Implementing IAS 39 requires an entity to assess the hedge effectiveness of each different risk position separately. In order to satisfy this requirement, IG F.1.13 imputed equal and opposite functional currency legs, which did not exist in the contractual terms of the derivative hedging instrument, as a basis to split the fair value of the derivative hedging instrument into multiple components. In addition, IG F.1.12 permits an entity to designate a derivative simultaneously as a hedging instrument in both a cash flow hedge and a fair value hedge. The submission asked whether the approach set out in IG F.1.13 can be extended to other circumstances.
The IFRIC noted that, although IG F.1.12 and IG F.1.13 allow an entity to impute a notional leg as a means of splitting the fair value of a derivative hedging instrument into multiple components for assessing hedge effectiveness, the split should not result in the recognition of cash flows that do not exist in the contractual terms of a financial instrument (see Question C.1 of the guidance on implementing IAS 39).
In addition, the IFRIC noted that IAS 39 requires an entity to document, at the inception of the hedge, how it will assess hedge effectiveness. IAS 39 requires the entity to apply the chosen method consistently over the life of the hedging relationship.
The IFRIC noted that the issue concerned how to assess hedge effectiveness. Therefore, the IFRIC decided not to add the issue to the agenda because any guidance developed would be more in the nature of application guidance than an interpretation.]
E3
[IFRIC®
Update
, September 2007, Agenda Decision, ‘IAS 39
Financial Instruments: Recognition and Measurement
—Hedging future cash flows with purchased options’
The IFRIC received requests relating to a situation in which an entity designates an option, in its entirety, as a hedging instrument to hedge a one‑sided variability in future cash flows in a cash flow hedge. All changes in the fair value of the option (including changes in the time value component) are considered in assessing and measuring hedge effectiveness.
The requests suggested the following approach to assessing and measuring hedge effectiveness. An entity could compare all changes in the fair value of the purchased option with changes in the fair value of a hypothetical written option that has the same maturity date and notional amount as the hedged item. The requests noted that such an approach would minimise or eliminate hedge ineffectiveness when the terms of the purchased option and the hypothetical written option perfectly matched. The IFRIC was asked whether IAS 39 allows such an approach.
The IFRIC noted that some respondents to its tentative agenda decision believed that the issue was complex and that there was diversity in practice regarding whether the approach suggested or other similar approaches are allowed under IAS 39.
However, the IFRIC decided not to take the issue on to its agenda because the Board had recently decided to propose an amendment to IAS 39 to clarify what risks and cash flows can be designated as hedged risks and hedged portions of risks for hedge accounting purposes. The IFRIC noted that the Board’s project would specifically address the issue discussed in this agenda decision.]
77
Two or more
derivatives
, or proportions of them (or, in the case of a hedge of
currency risk
, two or more non‑derivatives or proportions of them, or a combination of derivatives and non‑derivatives or proportions of them), may be viewed in combination and jointly designated as the
hedging instrument
, including when the risk(s) arising from some derivatives offset(s) those arising from others.
E4
However, an interest rate collar or other derivative instrument that combines a written option and a purchased option does not qualify as a hedging instrument if it is, in effect, a net written option (for which a net premium is received). Similarly, two or more instruments (or proportions of them) may be designated as the hedging instrument only if none of them is a written option or a net written option.
[
Refer:
Basis for Conclusions paragraphs BC213–BC215
]
E4
[IFRIC®
Update
, July 2009, Agenda Decision, ‘IAS 39
Financial Instruments: Recognition and Measurement
—Hedging using more than one derivative as the hedging instrument’
The IFRIC received a request for guidance on how to apply the guidance in Q&A F.2.1 in the guidance on implementing IAS 39
whether a derivative can be designated as a hedged item
when an entity issues fixed interest rate foreign currency debt and then swaps it into floating interest rate local currency debt using a cross currency interest rate swap. The entity also enters into a local currency pay‑fixed, receive‑variable interest rate swap, which has a shorter duration than that of the cross‑currency interest rate swap. The submission asked whether the guidance in Q&A F.2.1 prevents cash flows attributable to a derivative from being designated as the hedged cash flow in a hedge relationship.
The IFRIC noted that paragraph 77 of IAS 39 states that two or more derivatives may be viewed in combination
and jointly designated
as
the hedging instrument
, including when the risk(s) arising from some derivatives offset(s) those arising from others (emphasis added). Consequently, the IFRIC noted that although IAS 39 permits a combination of derivatives to be jointly designated as the hedging instrument in a hedging relationship, it does not allow a ‘synthetic hedged item’ created by combining one derivative with a non‑derivative financial instrument to be designated as the hedged item in a hedging relationship with another derivative.
Given the requirements in IAS 39, the IFRIC concluded that any guidance it could provide would be in the nature of implementation guidance rather than an interpretation. Therefore, the IFRIC decided not to add this issue to its agenda.]
Hedged items
Qualifying items
[
Link to
paragraph AG94
for the exceptional circumstances in which a derivative can be a hedged item]
78
A
hedged item
can be a recognised asset or liability, an unrecognised
firm commitment
, a highly probable
forecast transaction
or a net investment in a foreign operation. The hedged item can be (a) a single asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation, (b) a group of assets, liabilities, firm commitments, highly probable forecast transactions or net investments in foreign operations with similar risk characteristics
[
Refer:
paragraphs 83 and 84
]
or (c) in a portfolio hedge of
interest rate risk
only, a portion of the portfolio of
financial assets
or
financial liabilities
that share the risk being hedged.
[
Refer:
paragraphs AG98 and AG99
Illustrative Examples paragraphs IE1 and IE2
]
79
[Deleted]
80
For hedge accounting purposes, only assets, liabilities,
firm commitments
or highly probable
forecast transactions
that involve a party external to the entity can be designated as
hedged items
. It follows that hedge accounting can be applied to transactions between entities in the same group only in the individual or separate financial statements of those entities and not in the consolidated financial statements of the group, except for the consolidated financial statements of an investment entity, as defined in
, where transactions between an investment entity and its subsidiaries measured at fair value through profit or loss will not be eliminated in the consolidated financial statements. As an exception, the foreign
currency risk
of an intragroup monetary item (eg a payable/receivable between two subsidiaries) may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation in accordance with
The Effects of Changes in Foreign Exchange Rates
. In accordance with IAS 21, foreign exchange rate gains and losses on intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss.
[
Refer:
paragraphs 108A
,
AG99A and AG99B
]
Designation of financial items as hedged items
81
If the
hedged item
is a
financial asset
or
financial liability
, it may be a hedged item with respect to the risks associated with only a portion of its cash flows or
fair value
(such as one or more selected contractual cash flows or portions of them or a percentage of the fair value) provided that effectiveness can be measured. For example, an identifiable and separately measurable portion of the interest rate exposure of an interest‑bearing asset or interest‑bearing liability may be designated as the hedged risk (such as a risk‑free interest rate or benchmark interest rate component of the total interest rate exposure of a hedged
financial instrument
).
[
Refer:
paragraphs AG99C and AG99D
Basis for Conclusions paragraph BC135A
]
81A
In a fair value hedge of the interest rate exposure of a portfolio of
financial assets
or
financial liabilities
(and only in such a hedge), the portion hedged
[
Refer:
Basis for Conclusions paragraph BC191
]
may be designated in terms of an amount of a currency (eg an amount of dollars, euro, pounds or rand) rather than as individual assets (or liabilities)
[
Refer:
Basis for Conclusions paragraph BC193
and
Illustrative Example paragraphs IE4
and
IE19
]
. Although the portfolio may, for risk management purposes, include assets and liabilities, the amount designated is an amount of assets or an amount of liabilities. Designation of a net amount including assets and liabilities is not permitted
[
Refer:
paragraph AG101
and
Illustrative Example paragraph IE9
]
. The entity may hedge a portion of the
interest rate risk
associated with this designated amount. For example, in the case of a hedge of a portfolio containing prepayable assets, the entity may hedge the change in
fair value
that is attributable to a change in the hedged interest rate on the basis of expected, rather than contractual, repricing dates. When the portion hedged is based on expected repricing dates, the effect that changes in the hedged interest rate have on those expected repricing dates shall be included when determining the change in the fair value of the
hedged item
. Consequently, if a portfolio that contains prepayable items is hedged with a non‑prepayable derivative, ineffectiveness arises if the dates on which items in the hedged portfolio are expected to prepay are revised, or actual prepayment dates differ from those expected.
[
Refer:
paragraph 89A
paragraphs AG99C, AG99D
and
AG114–AG132
Basis for Conclusions paragraphs BC173–BC220
]
Designation of non‑financial items as hedged items
82
If the
hedged item
is a non‑financial asset or non‑financial liability, it shall be designated as a hedged item (a) for foreign
currency risks
, or (b) in its entirety
E5
for all risks, because of the difficulty of isolating and measuring the appropriate portion of the cash flows or
fair value
changes attributable to specific risks other than foreign currency risks.
[
Refer:
paragraph AG100
Basis for Conclusions paragraphs BC137–BC139
]
E5
[IFRIC®
Update
, October 2004, Agenda Decision, ‘Commodity price risk hedging’
The IFRIC considered whether under IAS 39 a non‑financial item can be separated into price risk components, with the component that relates to an efficient, liquid and regulated commodity exchange being designated as the hedged item (rather than the price risk of the entire non‑financial item).
The IFRIC agreed that IAS 39 paragraphs 82 and AG100 provide clear guidance on the matter. The IFRIC also noted that to allow separation of a non‑financial asset into price risk components with the separate components being designated as the hedged item would require an amendment to IAS 39 rather than an Interpretation.]
Designation of groups of items as hedged items
83
Similar assets or similar liabilities shall be aggregated and hedged as a group only if the individual assets or individual liabilities in the group share the risk exposure that is designated as being hedged. Furthermore, the change in
fair value
attributable to the hedged risk for each individual item in the group shall be expected to be approximately proportional to the overall change in fair value attributable to the hedged risk of the group of items.
84
Because an entity assesses
hedge effectiveness
by comparing the change in the
fair value
or cash flow of a
hedging instrument
(or group of similar hedging instruments) and a
hedged item
(or group of similar hedged items), comparing a hedging instrument with an overall net position (eg the net of all fixed rate assets and fixed rate liabilities with similar maturities), rather than with a specific hedged item, does not qualify for hedge accounting.
[
Refer:
paragraph AG101
]
Hedge accounting
85
Hedge accounting recognises the offsetting effects on profit or loss of changes in the
fair values
of the
hedging instrument
and the
hedged item
.
86
Hedging relationships are of three types:
(a)
fair value hedge
: a hedge of the exposure to changes in
fair value
of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability or
firm commitment
, that is attributable to a particular risk and could affect profit or loss.
[
Refer:
paragraphs 89–94
]
[
Refer:
paragraphs AG102
and
AG104
]
(b)
cash flow hedge
: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable
forecast transaction
and (ii) could affect profit or loss.
[
Refer:
paragraphs 95–101
]
[
Refer:
paragraph AG103
Basis for Conclusions paragraphs BC146–BC148
]
(c)
hedge of a
net investment in a foreign operation
as defined in
.
[
Refer:
paragraph 102
]
87
A hedge of the foreign
currency risk
of a
firm commitment
may be accounted for as a fair value hedge
[
Refer:
paragraphs 89–94
]
or as a cash flow hedge
[
Refer:
paragraphs 95–101
]
.
[
Refer:
paragraph AG104
Basis for Conclusions paragraphs BC149–BC154
]
88
A hedging relationship qualifies for hedge accounting under paragraphs 89–102 if, and only if, all of the following conditions are met.
E6
(a)
At the inception of the hedge there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the
hedging instrument
, the
hedged item
or transaction, the nature of the risk being hedged and how the entity will assess the
hedging instrument’s effectiveness
in offsetting the exposure to changes in the hedged item’s
fair value
or cash flows attributable to the hedged risk.
(b)
The hedge is expected to be highly effective (see
Appendix A paragraphs AG105–AG113A
) in achieving offsetting changes in
fair value
or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship.
[
Refer:
Basis for Conclusions paragraphs BC136–BC136B
]
(c)
For cash flow hedges, a
forecast transaction
that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss.
E7
(d)
The effectiveness of the hedge can be reliably measured, ie the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured.
(e)
The hedge is assessed on an ongoing basis
[
Refer:
paragraph AG106
]
and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated.
E8,
E9
[
Refer:
paragraphs AG105–AG113
]
[
Refer:
paragraphs AG105–AG113
Basis for Conclusions paragraphs BC136–BC136B
]
E6
[IFRIC®
Update
, November 2006, Agenda Decision, ‘IAS 39
Financial Instruments: Recognition and Measurement
—Testing of hedge effectiveness on a cumulative basis’
The IFRIC was asked to consider a situation in which an entity uses regression analysis to assess both retrospective and prospective effectiveness. In measuring hedge effectiveness at the initial stage of the hedging relationship, the entity finds that the actual dollar‑to‑dollar comparison of the changes in the fair value or cash flows of the hedged item that are attributable to the hedged risk and the changes in the fair value or cash flows of the hedging instrument was outside a range of 80–125 per cent. The issue was whether such a result meant that the entity failed to qualify for hedge accounting in accordance with IAS 39.
The IFRIC noted that IAS 39 distinguishes the requirement to perform periodic hedge effectiveness tests from the requirement to measure and recognise hedge effectiveness and ineffectiveness. The IFRIC noted that measurement of hedge effectiveness and ineffectiveness requires the comparison of the actual gains or losses on the hedging items and those on the hedged instruments.
However, the IFRIC observed that IAS 39 does not specify a single method for assessing retrospective and prospective hedge effectiveness. Paragraph 88 of IAS 39 requires an entity to document the method for assessing hedge effectiveness at inception of the hedging relationship and apply the same method consistently over the life of the hedging relationship. The entity should use the documented method to perform the tests. The IFRIC believed that the fact that the dollar‑to‑dollar comparison of the changes in the fair value or cash flows of the hedged items and the changes in the fair value or cash flows of the hedging instrument falls outside a range of 80–125 per cent does not necessarily result in the entity failing to qualify for hedge accounting, provided that the dollar‑to‑dollar comparison is not the method documented at inception of the hedge for assessing hedge effectiveness. The IFRIC also noted that, regardless of how hedge effectiveness is assessed, IAS 39 requires any hedge ineffectiveness to be recognised in profit or loss.
The IFRIC noted that specifying how to apply a particular method for assessing hedge effectiveness would require development of application guidance (rather than an Interpretation). The IFRIC therefore decided not to add the issue to the agenda.]
E7
[IFRIC®
Update
, March 2019, Agenda Decision, ‘
Financial Instruments
and
Financial Instruments: Recognition and Measurement
—Application of the Highly Probable Requirement when a Specific Derivative is Designated as a Hedging Instrument’
The Committee received a request about the requirement in IFRS 9 and IAS 39 that a forecast transaction must be ‘highly probable’ to qualify as a hedged item in a cash flow hedge relationship. The request asked how an entity applies that requirement when the notional amount of the derivative designated as a hedging instrument (load following swap) varies depending on the outcome of the hedged item (forecast energy sales).
The responses to outreach performed on the request and those received in comment letters confirmed that the financial instrument described in the request is not common. The comment letters also confirmed the views expressed by some Committee members that the request relates to the broader matter of how uncertainty over the timing and magnitude of a forecast transaction affects the highly probable assessment applying IFRS 9 and IAS 39.
The Committee observed that, in a cash flow hedge, a forecast transaction can be a hedged item if, and only if, it is highly probable (paragraphs 6.3.1 and 6.3.3 of IFRS 9 and paragraphs 86(b) and 88(c) of IAS 39). When assessing whether a forecast transaction (in the request, the forecast energy sales) is highly probable, an entity considers uncertainty over both the timing and magnitude of the forecast transaction (paragraphs F.3.7 and F.3.11 of the Implementation Guidance accompanying IAS 39).
The Committee also observed that, for hedge accounting purposes, the entity must document the forecast energy sales with sufficient specificity in terms of timing and magnitude so that when such transactions occur the entity can identify whether the transaction is the hedged transaction. Consequently, the forecast energy sales cannot be specified solely as a percentage of sales during a period because that would lack the required specificity (paragraphs F.3.10 and F.3.11 of the Implementation Guidance accompanying IAS 39).
In addition, the Committee observed that the terms of the hedging instrument (in the request, the load following swap) do not affect the highly probable assessment because the highly probable requirement is applicable to the hedged item.
The Committee noted that the highly probable requirement in IFRS 9 is not new; IAS 39 includes the same requirement. The Board decided not to carry forward any of the hedge accounting related Implementation Guidance that accompanied IAS 39; nonetheless paragraph BC6.95 of IFRS 9 explains that not carrying forward the Implementation Guidance did not mean that the Board had rejected that guidance.
The Committee concluded that the requirements in IFRS 9 and IAS 39 provide an adequate basis for an entity to determine whether a forecast transaction is highly probable. Consequently, the Committee decided not to add this matter to its standard-setting agenda.]
E8
[IFRIC®
Update
, October 2004, Agenda Decision, ‘Single instrument designated as a hedge of more than one type of risk’
The IFRIC considered whether, when a single hedging instrument is designated as a hedge of more than one type of risk, the effectiveness test can be carried out for the total hedged position, which incorporates all risks identified, if these risks are inextricably linked in the hedging instrument.
The IFRIC agreed that IAS 39 was clear on the matter. The Standard does not require separate effectiveness testing when a single hedging instrument is designated as a hedge of more than one type of risk. The IFRIC also noted that the issue is neither widespread nor pervasive at present.]
E9
[IFRIC®
Update
, June 2005, Agenda Decision, ‘IAS 39 Hedge effectiveness tests—vacillations in effectiveness/timing of tests’
The IFRIC considered whether under IAS 39 an entity that designates a hedging instrument in a hedge that fails the retrospective effectiveness test can subsequently redesignate the hedging instrument in a hedge of the same financial asset or liability and obtain hedge accounting for a subsequent period in which the hedge is effective.
The IFRIC noted that the Standard did not preclude redesignation of the hedging instrument in a hedge of the same financial asset or liability in a subsequent period provided the hedge meets the hedge accounting requirements in IAS 39. It concluded that, although having practical relevance, the issue did not involve significantly divergent interpretations. Accordingly, the IFRIC decided not to add the topic to its agenda.]
Fair value hedges
89
If a fair value hedge meets the conditions in paragraph 88 during the period, it shall be accounted for as follows:
(a)
the gain or loss from remeasuring the
hedging instrument
at
fair value
(for a derivative hedging instrument) or the foreign currency component of its carrying amount measured in accordance with
(for a non‑derivative hedging instrument) shall be recognised in profit or loss; and
(b)
the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is a financial asset measured at fair value through other comprehensive income in accordance with
paragraph 4.1.2A of IFRS 9.
[
Refer:
Illustrative Example paragraphs IE14
,
IE24
and
IE28
]
89A
For a fair value hedge of the interest rate exposure of a portion of a portfolio of
financial assets
or
financial liabilities
(and only in such a hedge), the requirement in
paragraph 89(b)
may be met by presenting the gain or loss attributable to the hedged item either:
(a)
in a single separate line item within assets, for those repricing time periods for which the
hedged item
is an asset; or
(b)
in a single separate line item within liabilities, for those repricing time periods for which the hedged item is a liability.
The separate line items referred to in (a) and (b) above shall be presented next to financial assets or financial liabilities. Amounts included in these line items shall be removed from the statement of financial position when the assets or liabilities to which they relate are
derecognised
.
[
Refer:
paragraphs 81A
and
AG114–AG132
Basis for Conclusions paragraphs BC173–BC220
Illustrative Example paragraphs IE14
,
IE18
,
IE24
and
IE28
]
90
If only particular risks attributable to a
hedged item
are hedged, recognised changes in the fair value of the hedged item unrelated to the hedged risk are recognised as set out in
paragraph 5.7.1 of IFRS 9
.
91
An entity shall discontinue prospectively the hedge accounting specified in
paragraph 89
if:
(a)
the
hedging instrument
expires or is sold, terminated or exercised. For this purpose, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if such replacement or rollover is part of the entity’s documented hedging strategy. Additionally, for this purpose there is not an expiration or termination of the hedging instrument if:
[
Refer:
Basis for Conclusions paragraphs BC220A–BC220W
]
(i)
as a consequence of laws or regulations or the introduction of laws or regulations
[
Refer:
Basis for Conclusions paragraphs BC220G–BC220I
and
BC220P–BC220Q
]
, the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. For this purpose, a clearing counterparty is a central counterparty (sometimes called a ‘clearing organisation’ or ‘clearing agency’) or an entity or entities, for example, a clearing member of a clearing organisation or a client of a clearing member of a clearing organisation, that are acting as counterparty in order to effect clearing by a central counterparty. However, when the parties to the hedging instrument replace their original counterparties with different counterparties this paragraph shall apply only if each of those parties effects clearing with the same central counterparty.
[
Refer:
Basis for Conclusions paragraphs BC220R–BC220T
]
(ii)
other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral requirements, rights to offset receivables and payables balances, and charges levied.
[
Refer:
Basis for Conclusions paragraph BC220L
]
(b)
the hedge no longer meets the criteria for hedge accounting in
paragraph 88
; or
[
Refer:
paragraph AG113
]
(c)
the entity revokes the designation.
[
Refer:
Illustrative Example paragraphs IE21
and
IE28
]
92
Any adjustment arising from
paragraph 89(b)
to the carrying amount of a hedged
financial instrument
for which the
effective interest method
is used (or, in the case of a portfolio hedge of
interest rate risk
, to the separate line item in the statement of financial position described in
paragraph 89A
) shall be amortised to profit or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the
hedged item
ceases to be adjusted for changes in its
fair value
attributable to the risk being hedged. The adjustment is based on a recalculated effective interest rate at the date amortisation begins. However, if, in the case of a fair value hedge of the interest rate exposure of a portfolio of
financial assets
or
financial liabilities
(and only in such a hedge), amortising using a recalculated effective interest rate is not practicable, the adjustment shall be amortised using a straight‑line method. The adjustment shall be amortised fully by maturity of the
financial instrument
or, in the case of a portfolio hedge of interest rate risk, by expiry of the relevant repricing time period.
[
Refer:
paragraph AG131
Basis for Conclusions paragraph BC212
Illustrative Example paragraphs IE21, IE22
,
IE26
and
IE30
]
93
When an unrecognised
firm commitment
is designated as a
hedged item
, the subsequent cumulative change in the
fair value
of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss (see
paragraph 89(b)
). The changes in the fair value of the
hedging instrument
are also recognised in profit or loss.
[
Refer:
paragraph AG104
Basis for Conclusions paragraphs BC149–BC154
]
94
When an entity enters into a
firm commitment
to acquire an asset or assume a liability that is a
hedged item
in a fair value hedge, the initial carrying amount of the asset or liability that results from the entity meeting the firm commitment is adjusted to include the cumulative change in the
fair value
of the firm commitment attributable to the hedged risk that was recognised in the statement of financial position.
Cash flow hedges
95
If a cash flow hedge meets the conditions in
paragraph 88
during the period, it shall be accounted for as follows:
(a)
the portion of the gain or loss on the
hedging instrument
that is determined to be an effective hedge (see
paragraph 88
) shall be recognised in other comprehensive income; and
(b)
the ineffective portion of the gain or loss on the hedging instrument shall be recognised in profit or loss.
96
More specifically, a cash flow hedge is accounted for as follows:
(a)
the separate component of equity associated with the
hedged item
is adjusted to the lesser of the following (in absolute amounts):
(i)
the cumulative gain or loss on the
hedging instrument
from inception of the hedge; and
(ii)
the cumulative change in
fair value
(present value) of the expected future cash flows on the hedged item from inception of the hedge;
(b)
any remaining gain or loss on the hedging instrument or designated component of it (that is not an effective hedge) is recognised in profit or loss; and
(c)
if an entity’s documented risk management strategy for a particular hedging relationship excludes from the assessment of hedge effectiveness a specific component of the gain or loss or related cash flows on the hedging instrument (see
paragraphs 74
,
75
and
88(a)
), that excluded component of gain or loss is recognised in accordance with
paragraph 5.7.1 of IFRS 9
.
97
If a hedge of a
forecast transaction
subsequently results in the recognition of a
financial asset
or a
financial liability
, the associated gains or losses that were recognised in other comprehensive income in accordance with
paragraph 95
shall be reclassified from equity to profit or loss as a reclassification adjustment (see
(as revised in 2007)) in the same period or periods during which the hedged forecast cash flows affect profit or loss (such as in the periods that interest income or interest expense is recognised). However, if an entity expects that all or a portion of a loss recognised in other comprehensive income will not be recovered in one or more future periods, it shall reclassify into profit or loss as a reclassification adjustment the amount that is not expected to be recovered.
[
Refer:
Basis for Conclusions paragraphs BC155–BC161G
]
98
If a hedge of a
forecast transaction
subsequently results in the recognition of a non‑financial asset or a non‑financial liability, or a forecast transaction for a non‑financial asset or non‑financial liability becomes a
firm commitment
for which fair value hedge accounting is applied, then the entity shall adopt (a) or (b) below:
(a)
It reclassifies the associated gains and losses that were recognised in other comprehensive income in accordance with
paragraph 95
to profit or loss as a reclassification adjustment (see
(revised 2007)) in the same period or periods during which the asset acquired or liability assumed affects profit or loss (such as in the periods that depreciation expense or cost of sales is recognised). However, if an entity expects that all or a portion of a loss recognised in other comprehensive income will not be recovered in one or more future periods, it shall reclassify from equity to profit or loss as a reclassification adjustment the amount that is not expected to be recovered.
(b)
It removes the associated gains and losses that were recognised in other comprehensive income in accordance with
paragraph 95
, and includes them in the initial cost or other carrying amount of the asset or liability.
[
Refer:
Basis for Conclusions paragraphs BC155–BC160
and
BC162–BC164
]
99
An entity shall adopt either (a) or (b) in
paragraph 98
as its accounting policy and shall apply it consistently to all hedges to which paragraph 98 relates.
100
For cash flow hedges other than those covered by
paragraphs 97
and 98
, amounts that had been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment (see
IAS 1 (revised 2007
)) in the same period or periods during which the hedged forecast cash flows affect profit or loss (for example, when a forecast sale occurs).
101
In any of the following circumstances an entity shall discontinue prospectively the hedge accounting specified in
paragraphs 95–100
:
(a)
The
hedging instrument
expires or is sold, terminated or exercised. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see
paragraph 95(a)
) shall remain separately in equity until the
forecast transaction
occurs. When the transaction occurs,
paragraph 97
,
98
or
100
applies. For the purpose of this subparagraph, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if such replacement or rollover is part of the entity’s documented hedging strategy. Additionally, for the purpose of this subparagraph there is not an expiration or termination of the hedging instrument if:
[
Refer:
Basis for Conclusions paragraphs BC220A–BC220W
]
(i)
as a consequence of laws or regulations or the introduction of laws or regulations,
[
Refer:
Basis for Conclusions paragraphs BC220G–BC220I
and
BC220P–BC220Q
]
the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. For this purpose, a clearing counterparty is a central counterparty (sometimes called a ‘clearing organisation’ or ‘clearing agency’) or an entity or entities, for example, a clearing member of a clearing organisation or a client of a clearing member of a clearing organisation, that are acting as counterparty in order to effect clearing by a central counterparty. However, when the parties to the hedging instrument replace their original counterparties with different counterparties this paragraph shall apply only if each of those parties effects clearing with the same central counterparty.
[
Refer:
Basis for Conclusions paragraphs BC220R–BC220T
]
(ii)
other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral requirements, rights to offset receivables and payables balances, and charges levied.
[
Refer:
Basis for Conclusions paragraph BC220L
]
(b)
The hedge no longer meets the criteria for hedge accounting in
paragraph 88
. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see
paragraph 95(a)
) shall remain separately in equity until the forecast transaction occurs. When the transaction occurs,
paragraph 97
,
98
or
100
applies.
[
Refer:
paragraph AG113
]
(c)
The forecast transaction is no longer expected to occur, in which case any related cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see
paragraph 95(a)
) shall be reclassified from equity to profit or loss as a reclassification adjustment. A forecast transaction that is no longer highly probable (see
paragraph 88(c)
) may still be expected to occur.
(d)
The entity revokes the designation. For hedges of a forecast transaction, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see
paragraph 95(a)
) shall remain separately in equity until the forecast transaction occurs or is no longer expected to occur. When the transaction occurs,
paragraph 97
,
98
or
100
applies. If the transaction is no longer expected to occur, the cumulative gain or loss that had been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment.
Hedges of a net investment
[
Refer:
IFRIC 16
]
102
Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment (see
), shall be accounted for similarly to cash flow hedges:
(a)
the portion of the gain or loss on the
hedging instrument
that is determined to be an effective hedge (see
paragraph 88
) shall be recognised in other comprehensive income; and
(b)
the ineffective portion shall be recognised in profit or loss.
The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment (see
(revised 2007)) in accordance with
paragraphs 48–49 of IAS 21
on the disposal or partial disposal of the foreign operation.
Temporary exceptions from applying specific hedge accounting requirements
[
Refer:
Basis for Conclusions paragraphs BC232–BC234
]
102A
An entity shall apply
paragraphs 102D–102N
and
108G
to all hedging relationships directly affected by interest rate benchmark reform. These paragraphs apply only to such hedging relationships. A hedging relationship is directly affected by interest rate benchmark reform only if the reform gives rise to uncertainties about:
(a)
the interest rate benchmark (contractually or non-contractually specified) designated as a hedged risk; and/or
(b)
the timing or the amount of interest rate benchmark-based cash flows of the
hedged item
or of the
hedging instrument
.
102B
For the purpose of applying
paragraphs 102D–102N
, the term ‘interest rate benchmark reform’ refers to the market-wide reform of an interest rate benchmark, including the replacement of an interest rate benchmark with an alternative benchmark rate such as that resulting from the recommendations set out in the Financial Stability Board’s July 2014 report ‘Reforming Major Interest Rate Benchmarks’.
2
102C
Paragraphs 102D–102N
provide exceptions only to the requirements specified in these paragraphs. An entity shall continue to apply all other hedge accounting requirements to hedging relationships directly affected by interest rate benchmark reform.
Highly probable requirement for cash flow hedges
102D
For the purpose of applying the requirement in
paragraph 88(c)
that a
forecast transaction
must be highly probable, an entity shall assume that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform.
[
Refer:
Basis for Conclusions paragraphs BC235–BC237
]
Reclassifying the cumulative gain or loss recognised in other comprehensive income
102E
For the purpose of applying the requirement in
paragraph 101(c)
in order to determine whether the forecast transaction is no longer expected to occur, an entity shall assume that the interest rate benchmark on which the hedged cash flows (contractually or non-contractually specified) are based is not altered as a result of interest rate benchmark reform.
[
Refer:
Basis for Conclusions paragraph BC238
]
Effectiveness assessment
[
Refer:
Basis for Conclusions paragraphs BC239–BC256
]
102F
For the purpose of applying the requirements in
paragraphs 88(b)
and
AG105(a)
, an entity shall assume that the interest rate benchmark on which the hedged cash flows and/or the hedged risk (contractually or non-contractually specified) are based, or the interest rate benchmark on which the cash flows of the
hedging instrument
are based, is not altered as a result of interest rate benchmark reform.
102G
For the purpose of applying the requirement in
paragraph 88(e)
, an entity is not required to discontinue a hedging relationship because the actual results of the hedge do not meet the requirements in
paragraph AG105(b)
. For the avoidance of doubt, an entity shall apply the other conditions in
paragraph 88
, including the prospective assessment in
paragraph 88(b)
, to assess whether the hedging relationship must be discontinued.
Designating financial items as hedged items
[
Refer:
Basis for Conclusions paragraphs BC257–BC265
]
102H
Unless
paragraph 102I
applies, for a hedge of a non-contractually specified benchmark portion of interest rate risk, an entity shall apply the requirement in
paragraphs 81
and
AG99F
—that the designated portion shall be separately identifiable—only at the inception of the hedging relationship.
102I
When an entity, consistent with its hedge documentation, frequently resets (ie discontinues and restarts) a hedging relationship because both the
hedging instrument
and the
hedged item
frequently change (ie the entity uses a dynamic process in which both the hedged items and the hedging instruments used to manage that exposure do not remain the same for long), the entity shall apply the requirement in
paragraphs 81
and
AG99F
—that the designated portion is separately identifiable—only when it initially designates a hedged item in that hedging relationship. A hedged item that has been assessed at the time of its initial designation in the hedging relationship, whether it was at the time of the hedge inception or subsequently, is not reassessed at any subsequent redesignation in the same hedging relationship.
End of application
[
Refer:
Basis for Conclusions paragraphs BC270–BC285
]
102J
An entity shall prospectively cease applying
paragraph 102D
to a hedged item at the earlier of:
(a)
when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedged item; and
(b)
when the hedging relationship that the hedged item is part of is discontinued.
102K
An entity shall prospectively cease applying
paragraph 102E
at the earlier of:
(a)
when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based future cash flows of the hedged item; and
(b)
when the entire cumulative gain or loss recognised in other comprehensive income with respect to that discontinued hedging relationship has been reclassified to profit or loss.
102L
An entity shall prospectively cease applying
paragraph 102F
:
(a)
to a hedged item, when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the hedged risk or the timing and the amount of the interest rate benchmark-based cash flows of the hedged item; and
(b)
to a
hedging instrument
, when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the timing and the amount of the interest rate benchmark-based cash flows of the hedging instrument.
If the hedging relationship that the hedged item and the
hedging instrument
are part of is discontinued earlier than the date specified in
paragraph 102L(a)
or the date specified in
paragraph 102L(b)
, the entity shall prospectively cease applying paragraph 102F to that hedging relationship at the date of discontinuation.
102M
An entity shall prospectively cease applying
paragraph 102G
to a hedging relationship at the earlier of:
(a)
when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the hedged risk and the timing and the amount of the interest rate benchmark-based cash flows of the hedged item and of the
hedging instrument
; and
(b)
when the hedging relationship to which the exception is applied is discontinued.
102N
When designating a group of items as the
hedged item
, or a combination of financial instruments as the
hedging instrument
, an entity shall prospectively cease applying
paragraphs 102D–102G
to an individual item or financial instrument in accordance with
paragraphs 102J
,
102K
,
102L
, or
102M
, as relevant, when the uncertainty arising from interest rate benchmark reform is no longer present with respect to the hedged risk and/or the timing and the amount of the interest rate benchmark-based cash flows of that item or financial instrument.
102O
An entity shall prospectively cease applying
paragraphs 102H and 102I
at the earlier of:
(a)
when changes required by interest rate benchmark reform are made to the non-contractually specified risk portion applying
paragraph 102P
; or
(b)
when the hedging relationship in which the non-contractually specified risk portion is designated is discontinued.
[
Refer:
Basis for Conclusions paragraphs BC342–BC345
]
Additional temporary exceptions arising from interest rate benchmark reform
Hedge accounting
102P
As and when the requirements in
paragraphs 102D–102I
cease to apply to a hedging relationship (see
paragraphs 102J–102O
), an entity shall amend the formal designation of that hedging relationship as previously documented to reflect the changes required by interest rate benchmark reform, ie the changes are consistent with the requirements in
paragraphs 5.4.6–5.4.8 of IFRS 9
. In this context, the hedge designation shall be amended only to make one or more of these changes:
(a)
designating an alternative benchmark rate (contractually or non-contractually specified) as a hedged risk;
(b)
amending the description of the
hedged item
, including the description of the designated portion of the cash flows or fair value being hedged;
(c)
amending the description of the
hedging instrument
; or
(d)
amending the description of how the entity will assess
hedge effectiveness
.
[
Refer:
Basis for Conclusions paragraphs BC296–BC305
,
paragraphs BC309
and
BC315–BC320
]
102Q
An entity also shall apply the requirement in
paragraph 102P(c)
if these three conditions are met:
(a)
the entity makes a change required by interest rate benchmark reform using an approach other than changing the basis for determining the contractual cash flows of the
hedging instrument
(as described in
paragraph 5.4.6 of IFRS 9
);
(b)
the original hedging instrument is not derecognised; and
(c)
the chosen approach is economically equivalent to changing the basis for determining the contractual cash flows of the original hedging instrument (as described in
paragraphs 5.4.7
and
5.4.8 of IFRS 9
).
[
Refer:
Basis for Conclusions paragraphs BC310–BC314
]
102R
The requirements in
paragraphs 102D–102I
may cease to apply at different times. Therefore, applying
paragraph 102P
, an entity may be required to amend the formal designation of its hedging relationships at different times, or may be required to amend the formal designation of a hedging relationship more than once. When, and only when, such a change is made to the hedge designation, an entity shall apply
paragraphs 102V–102Z2
as applicable. An entity also shall apply
paragraph 89
(for a fair value hedge) or
paragraph 96
(for a cash flow hedge) to account for any changes in the fair value of the
hedged item
or the
hedging instrument
.
[
Refer:
Basis for Conclusions paragraph BC306
]
102S
An entity shall amend a hedging relationship as required in
paragraph 102P
by the end of the reporting period during which a change required by interest rate benchmark reform is made to the hedged risk,
hedged item
or
hedging instrument
.
[
Refer:
Basis for Conclusions paragraphs BC304–BC305
]
For the avoidance of doubt, such an amendment to the formal designation of a hedging relationship constitutes neither the discontinuation of the hedging relationship nor the designation of a new hedging relationship.
102T
If changes are made in addition to those changes required by interest rate benchmark reform to the financial asset or financial liability designated in a hedging relationship (as described in
paragraphs 5.4.6–5.4.8 of IFRS 9
) or to the designation of the hedging relationship (as required by
paragraph 102P
), an entity shall first apply the applicable requirements in this Standard to determine if those additional changes result in the discontinuation of hedge accounting. If the additional changes do not result in the discontinuation of hedge accounting, an entity shall amend the formal designation of the hedging relationship as specified in paragraph 102P.
[
Refer:
Basis for Conclusions paragraphs BC307–BC308
]
102U
Paragraphs 102V–102Z3
provide exceptions to the requirements specified in those paragraphs only. An entity shall apply all other hedge accounting requirements in this Standard, including the qualifying criteria in
paragraph 88
, to hedging relationships that were directly affected by interest rate benchmark reform.
Accounting for qualifying hedging relationships
Retrospective effectiveness assessment
[
Refer:
Basis for Conclusions paragraphs BC321–BC324
]
102V
For the purpose of assessing the retrospective effectiveness of a hedging relationship on a cumulative basis applying
paragraph 88(e)
and only for this purpose, an entity may elect to reset to zero the cumulative fair value changes of the
hedged item
and
hedging instrument
when ceasing to apply
paragraph 102G
as required by
paragraph 102M
. This election is made separately for each hedging relationship (ie on an individual hedging relationship basis).
Cash flow hedges
[
Refer:
Basis for Conclusions paragraphs BC327–BC336
]
102W
For the purpose of applying
paragraph 97
, at the point when an entity amends the description of a
hedged item
as required in
paragraph 102P(b)
, the cumulative gain or loss in other comprehensive income shall be deemed to be based on the alternative benchmark rate on which the hedged future cash flows are determined.
102X
For a discontinued hedging relationship, when the interest rate benchmark on which the hedged future cash flows had been based is changed as required by interest rate benchmark reform, for the purpose of applying
paragraph 101(c)
in order to determine whether the hedged future cash flows are expected to occur, the amount accumulated in other comprehensive income for that hedging relationship shall be deemed to be based on the alternative benchmark rate on which the hedged future cash flows will be based.
Groups of items
[
Refer:
Basis for Conclusions paragraphs BC337–BC341
]
102Y
When an entity applies
paragraph 102P
to groups of items designated as
hedged items
in a fair value or cash flow hedge, the entity shall allocate the hedged items to subgroups based on the benchmark rate being hedged and designate the benchmark rate as the hedged risk for each subgroup. For example, in a hedging relationship in which a group of items is hedged for changes in an interest rate benchmark subject to interest rate benchmark reform, the hedged cash flows or fair value of some items in the group could be changed to reference an alternative benchmark rate before other items in the group are changed. In this example, in applying paragraph 102P, the entity would designate the alternative benchmark rate as the hedged risk for that relevant subgroup of hedged items. The entity would continue to designate the existing interest rate benchmark as the hedged risk for the other subgroup of hedged items until the hedged cash flows or fair value of those items are changed to reference the alternative benchmark rate or the items expire and are replaced with hedged items that reference the alternative benchmark rate.
102Z
An entity shall assess separately whether each subgroup meets the requirements in
paragraphs 78
and
83
to be an eligible
hedged item
. If any subgroup fails to meet the requirements in paragraphs 78 and 83, the entity shall discontinue hedge accounting prospectively for the hedging relationship in its entirety. An entity also shall apply the requirements in
paragraphs 89
or
96
to account for ineffectiveness related to the hedging relationship in its entirety.
Designating financial items as hedged items
[
Refer:
Basis for Conclusions paragraphs BC346–BC357
]
102Z1
An alternative benchmark rate designated as a non-contractually specified risk portion that is not separately identifiable (see
paragraphs 81
and
AG99F
) at the date it is designated shall be deemed to have met that requirement at that date, if, and only if, the entity reasonably expects the alternative benchmark rate will be separately identifiable within 24 months. The 24-month period applies to each alternative benchmark rate separately and starts from the date the entity designates the alternative benchmark rate as a non-contractually specified risk portion for the first time (ie the 24-month period applies on a rate-by-rate basis).
102Z2
If subsequently an entity reasonably expects that the alternative benchmark rate will not be separately identifiable within 24 months from the date the entity designated it as a non-contractually specified risk portion for the first time, the entity shall cease applying the requirement in
paragraph 102Z1
to that alternative benchmark rate and discontinue hedge accounting prospectively from the date of that reassessment for all hedging relationships in which the alternative benchmark rate was designated as a non-contractually specified risk portion.
102Z3
In addition to those hedging relationships specified in
paragraph 102P
, an entity shall apply the requirements in
paragraphs 102Z1
and
102Z2
to new hedging relationships in which an alternative benchmark rate is designated as a non-contractually specified risk portion (see
paragraphs 81
and
AG99F
) when, because of interest rate benchmark reform, that risk portion is not separately identifiable at the date it is designated.
Effective date and transition
103
An entity shall apply this Standard (including the amendments issued in March 2004) for annual periods beginning on or after 1 January 2005. Earlier application is permitted. An entity shall not apply this Standard (including the amendments issued in March 2004) for annual periods beginning before 1 January 2005 unless it also applies
(issued December 2003). If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.
103A
[Deleted]
103B
[Deleted]
103C
IAS 1 (as revised in 2007)
amended the terminology used throughout IFRSs. In addition it amended
paragraphs 95(a)
,
97
,
98
,
100
,
102
,
108
and
AG99B
. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies
IAS 1 (revised 2007)
for an earlier period, the amendments shall be applied for that earlier period.
103D
[Deleted]
103E
(as amended in 2008) amended
paragraph 102
. An entity shall apply that amendment for annual periods beginning on or after 1 July 2009. If an entity applies
(amended 2008) for an earlier period, the amendment shall be applied for that earlier period.
103F
[Deleted]
103G
An entity shall apply paragraphs
AG99BA
,
AG99E
,
AG99F
,
AG110A
and
AG110B
retrospectively for annual periods beginning on or after 1 July 2009, in accordance with
Accounting Policies, Changes in Accounting Estimates and Errors
.
[
Refer:
IAS 8 paragraphs 19–28
,
30,
31
and
50–53
]
Earlier application is permitted. If an entity applies
Eligible Hedged Items
(Amendment to IAS 39) for periods beginning before 1 July 2009, it shall disclose that fact.
103H–103J
[Deleted]
103K
Improvements to IFRSs
issued in April 2009 amended
paragraphs 2(g)
,
97
and
100
. An entity shall apply the amendments to those paragraphs prospectively to all unexpired contracts for annual periods beginning on or after 1 January 2010. Earlier application is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.
103L–103P
[Deleted]
103Q
, issued in May 2011, amended
paragraphs 9
,
13
,
28
,
47
,
88
, AG46, AG52, AG64, AG76, AG76A, AG80, AG81 and AG96, added paragraph 43A and deleted paragraphs 48–49, AG69–AG75, AG77–AG79 and AG82. An entity shall apply those amendments when it applies
.
103R
Investment Entities
(Amendments to
,
and
), issued in October 2012, amended
paragraphs 2
and
80
. An entity shall apply those amendments for annual periods beginning on or after 1 January 2014. Earlier application of
Investment Entities
is permitted. If an entity applies those amendments earlier it shall also apply all amendments included in
Investment Entities
at the same time.
103S
[Deleted]
103T
Revenue from Contracts with Customers
, issued in May 2014, amended
paragraphs 2
,
9
, 43, 47, 55, AG2, AG4 and AG48 and added
paragraphs 2A
, 44A, 55A and AG8A–AG8C. An entity shall apply those amendments when it applies IFRS 15.
103U
, as issued in July 2014, amended paragraphs 2, 8, 9, 71, 88–90, 96, AG95, AG114, AG118 and the headings above AG133 and deleted paragraphs 1, 4–7, 10–70, 79, 103B, 103D, 103F, 103H–103J, 103L–103P, 103S, 105–107A, 108E–108F, AG1–AG93 and AG96. An entity shall apply those amendments when it applies IFRS 9.
103V
[This paragraph was added for an entity that had not adopted IFRS 9.]
104
This Standard shall be applied retrospectively except as specified in
paragraph 108
. The opening balance of retained earnings for the earliest prior period presented and all other comparative amounts shall be adjusted as if this Standard had always been in use unless restating the information would be impracticable. If restatement is impracticable, the entity shall disclose that fact and indicate the extent to which the information was restated.
105–107A
[Deleted]
108
An entity shall not adjust the carrying amount of non‑financial assets and non‑financial liabilities to exclude gains and losses related to cash flow hedges that were included in the carrying amount before the beginning of the financial year in which this Standard is first applied. At the beginning of the financial period in which this Standard is first applied, any amount recognised outside profit or loss (in other comprehensive income or directly in equity) for a hedge of a
firm commitment
that under this Standard is accounted for as a fair value hedge shall be reclassified as an asset or liability, except for a hedge of foreign
currency risk
that continues to be treated as a cash flow hedge.
108A
An entity shall apply the last sentence of
paragraph 80
, and
paragraphs AG99A and AG99B
, for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity has designated as the
hedged item
an external forecast transaction that
(a)
is denominated in the functional currency of the entity entering into the transaction,
(b)
gives rise to an exposure that will have an effect on consolidated profit or loss (ie is denominated in a currency other than the group’s presentation currency), and
(c)
would have qualified for hedge accounting had it not been denominated in the functional currency of the entity entering into it,
it may apply hedge accounting in the consolidated financial statements in the period(s) before the date of application of the last sentence of
paragraph 80
, and
paragraphs AG99A and AG99B
.
[
Refer:
paragraph AG133
]
108B
An entity need not apply
paragraph AG99B
to comparative information relating to periods before the date of application of the last sentence of
paragraph 80
and
paragraph AG99A
.
[
Refer:
paragraph AG133
]
108C
Paragraphs 73
and AG8 were amended by
Improvements to IFRSs
, issued in May 2008.
Paragraph 80
was amended by
Improvements to IFRSs
, issued in April 2009. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. Earlier application of all the amendments is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.
108D
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39), issued in June 2013, amended
paragraphs 91
and
101
and added
paragraph AG113A
. An entity shall apply those paragraphs for annual periods beginning on or after 1 January 2014. An entity shall apply those amendments retrospectively in accordance with
Accounting Policies, Changes in Accounting Estimates and Errors
. Earlier application is permitted. If an entity applies those amendments for an earlier period it shall disclose that fact.
[
Refer:
Basis for Conclusions paragraph BC220W
]
108E–108F
[Deleted]
108G
Interest Rate Benchmark Reform
, which amended
,
and
, issued in September 2019, added
paragraphs 102A–102N
. An entity shall apply these amendments for annual periods beginning on or after 1 January 2020.
[
Refer:
Basis for Conclusions paragraphs BC266–BC269
]
Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact. An entity shall apply these amendments retrospectively to those hedging relationships that existed at the beginning of the reporting period in which an entity first applies these amendments or were designated thereafter, and to the gain or loss recognised in other comprehensive income that existed at the beginning of the reporting period in which an entity first applies these amendments.
[
Refer:
Basis for Conclusions paragraphs BC286–BC288
]
108H
Interest Rate Benchmark Reform—Phase 2
, which amended IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, issued in August 2020, added
paragraphs 102O–102Z3
and
108I–108K
, and amended
paragraph 102M
. An entity shall apply these amendments for annual periods beginning on or after 1 January 2021. Earlier application is permitted. If an entity applies these amendments for an earlier period, it shall disclose that fact.
[
Refer:
Basis for Conclusions paragraphs BC358–BC364
]
An entity shall apply these amendments retrospectively in accordance with
, except as specified in
paragraphs 108I–108K
.
[
Refer:
Basis for Conclusions paragraph BC365
]
108I
An entity shall designate a new hedging relationship (for example, as described in
paragraph 102Z3
) only prospectively (ie an entity is prohibited from designating a new hedge accounting relationship in prior periods). However, an entity shall reinstate a discontinued hedging relationship if, and only if, these conditions are met:
(a)
the entity had discontinued that hedging relationship solely due to changes required by interest rate benchmark reform and the entity would not have been required to discontinue that hedging relationship if these amendments had been applied at that time; and
(b)
at the beginning of the reporting period in which an entity first applies these amendments (date of initial application of these amendments), that discontinued hedging relationship meets the qualifying criteria for hedge accounting (after taking into account these amendments).
[
Refer:
Basis for Conclusions paragraphs BC366–BC369
]
108J
If, in applying
paragraph 108I
, an entity reinstates a discontinued hedging relationship, the entity shall read references in
paragraphs 102Z1
and
102Z2
to the date the alternative benchmark rate is designated as a non-contractually specified risk portion for the first time as referring to the date of initial application of these amendments (ie the 24-month period for that alternative benchmark rate designated as a non-contractually specified risk portion begins from the date of initial application of these amendments).
[
Refer:
Basis for Conclusions paragraph BC370
]
108K
An entity is not required to restate prior periods to reflect the application of these amendments. The entity may restate prior periods if, and only if, it is possible without the use of hindsight. If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application of these amendments in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application of these amendments.
[
Refer:
Basis for Conclusions paragraph BC371
]
Withdrawal of other pronouncements
109
This Standard supersedes
Financial Instruments: Recognition and Measurement
revised in October 2000.
110
This Standard and the accompanying Implementation Guidance supersede the Implementation Guidance issued by the IAS 39 Implementation Guidance Committee, established by the former IASC.
Appendices
Appendix A
Application guidance
This appendix is an integral part of the Standard.
AG1–AG93
[Deleted]
Hedging (
paragraphs 71–102
)
Hedging instruments (
paragraphs 72–77
)
Qualifying instruments (
paragraphs 72 and 73
)
AG94
The potential loss on an option that an entity writes could be significantly greater than the potential gain in value of a related
hedged item
. In other words, a written option is not effective in reducing the profit or loss exposure of a hedged item. Therefore, a written option does not qualify as a
hedging instrument
unless it is designated as an offset to a purchased option, including one that is embedded in another
financial instrument
(for example, a written call option used to hedge a callable liability). In contrast, a purchased option has potential gains equal to or greater than losses and therefore has the potential to reduce profit or loss exposure from changes in fair values or cash flows. Accordingly, it can qualify as a hedging instrument.
[
Refer:
paragraph 72
]
AG95
A financial asset measured at
amortised cost
may be designated as a
hedging instrument
in a hedge of foreign currency risk.
[
Refer:
paragraph 72
]
AG96
[Deleted]
AG97
An entity’s own
equity instruments
are not
financial assets
or
financial liabilities
of the entity and therefore cannot be designated as
hedging instruments
.
[
Refer:
paragraph 72
]
Hedged items (
paragraphs 78–84
)
Qualifying items (
paragraphs 78–80
)
AG98
A
firm commitment
to acquire a business in a business combination cannot be a
hedged item
, except for
foreign exchange risk
, because the other risks being hedged cannot be specifically identified and measured. These other risks are general business risks.
AG99
An equity method investment cannot be a
hedged item
in a fair value hedge because the equity method recognises in profit or loss the investor’s share of the associate’s profit or loss, rather than changes in the investment’s
fair value
. For a similar reason, an investment in a consolidated subsidiary cannot be a hedged item in a fair value hedge because consolidation recognises in profit or loss the subsidiary’s profit or loss, rather than changes in the investment’s fair value. A hedge of a
net investment in a foreign operation
is different because it is a hedge of the foreign currency exposure, not a fair value hedge of the change in the value of the investment.
AG99A
Paragraph 80 states that in consolidated financial statements the foreign
currency risk
of a highly probable forecast intragroup transaction may qualify as a
hedged item
in a cash flow hedge, provided the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss. For this purpose an entity can be a parent, subsidiary, associate, joint venture or branch. If the foreign currency risk of a forecast intragroup transaction does not affect consolidated profit or loss, the intragroup transaction cannot qualify as a hedged item. This is usually the case for royalty payments, interest payments or management charges between members of the same group unless there is a related external transaction. However, when the foreign currency risk of a forecast intragroup transaction will affect consolidated profit or loss, the intragroup transaction can qualify as a hedged item. An example is forecast sales or purchases of inventories between members of the same group if there is an onward sale of the inventory to a party external to the group. Similarly, a forecast intragroup sale of plant and equipment from the group entity that manufactured it to a group entity that will use the plant and equipment in its operations may affect consolidated profit or loss. This could occur, for example, because the plant and equipment will be depreciated by the purchasing entity and the amount initially recognised for the plant and equipment may change if the forecast intragroup transaction is denominated in a currency other than the functional currency of the purchasing entity.
AG99B
If a hedge of a forecast intragroup transaction qualifies for hedge accounting, any gain or loss that is recognised in other comprehensive income in accordance with
paragraph 95(a)
shall be reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the foreign
currency risk
of the hedged transaction affects consolidated profit or loss.
[
Refer:
paragraph 80
]
AG99BA
An entity can designate all changes in the cash flows or
fair value
of a
hedged item
in a hedging relationship. An entity can also designate only changes in the cash flows or fair value of a hedged item above or below a specified price or other variable (a one‑sided risk). The intrinsic value of a purchased option hedging instrument (assuming that it has the same principal terms as the designated risk), but not its time value, reflects a one‑sided risk in a hedged item. For example, an entity can designate the variability of future cash flow outcomes resulting from a price increase of a forecast commodity purchase. In such a situation, only cash flow losses that result from an increase in the price above the specified level are designated. The hedged risk does not include the time value of a purchased option because the time value is not a component of the
forecast transaction
that affects profit or loss (
paragraph 86(b)
).
[
Refer:
Basis for Conclusions paragraphs BC172D–BC172F
]
Designation of financial items as hedged items
(
paragraphs 81 and 81A
)
AG99C
If a portion of the cash flows of a
financial asset
or
financial liability
is designated as the
hedged item
, that designated portion must be less than the total cash flows of the asset or liability. For example, in the case of a liability whose
effective interest rate
is below LIBOR, an entity cannot designate (a) a portion of the liability equal to the principal amount plus interest at LIBOR and (b) a negative residual portion. However, the entity may designate all of the cash flows of the entire financial asset or financial liability as the hedged item and hedge them for only one particular risk (eg only for changes that are attributable to changes in LIBOR). For example, in the case of a financial liability whose effective interest rate is 100 basis points below LIBOR, an entity can designate as the hedged item the entire liability (ie principal plus interest at LIBOR minus 100 basis points) and hedge the change in the fair value or cash flows of that entire liability that is attributable to changes in LIBOR. The entity may also choose a hedge ratio of other than one to one in order to improve the
effectiveness of the hedge
as described in
paragraph AG100
.
[
Refer:
paragraph 81A
Basis for Conclusions paragraph BC135A
]
AG99D
In addition, if a fixed rate
financial instrument
is hedged some time after its origination and interest rates have changed in the meantime, the entity can designate a portion equal to a benchmark rate that is higher than the contractual rate paid on the item. The entity can do so provided that the benchmark rate is less than the
effective interest rate
calculated on the assumption that the entity had purchased the instrument on the day it first designates the
hedged item
. For example, assume an entity originates a fixed rate financial asset of CU100 that has an effective interest rate of 6 per cent at a time when LIBOR is 4 per cent. It begins to hedge that asset some time later when LIBOR has increased to 8 per cent and the fair value of the asset has decreased to CU90. The entity calculates that if it had purchased the asset on the date it first designates it as the hedged item for its then fair value of CU90, the effective yield would have been 9.5 per cent. Because LIBOR is less than this effective yield, the entity can designate a LIBOR portion of 8 per cent that consists partly of the contractual interest cash flows and partly of the difference between the current fair value (ie CU90) and the amount repayable on maturity (ie CU100).
[
Refer:
paragraph 81A
Basis for Conclusions paragraph BC135A
]
AG99E
Paragraph 81
permits an entity to designate something other than the entire
fair value
change or cash flow variability of a
financial instrument
. For example:
(a)
all of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to some (but not all) risks; or
(b)
some (but not all) of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to all or only some risks (ie a ‘portion’ of the cash flows of the financial instrument may be designated for changes attributable to all or only some risks).
AG99F
To be eligible for hedge accounting, the designated risks and portions must be separately identifiable components of the
financial instrument
, and changes in the cash flows or
fair value
of the entire financial instrument arising from changes in the designated risks and portions must be reliably measurable. For example:
(a)
for a fixed rate financial instrument hedged for changes in fair value attributable to changes in a risk‑free or benchmark interest rate, the risk‑free or benchmark rate is normally regarded as both a separately identifiable component of the financial instrument and reliably measurable.
(b)
inflation is not separately identifiable and reliably measurable and cannot be designated as a risk or a portion of a financial instrument unless the requirements in (c) are met.
(c)
a contractually specified inflation portion of the cash flows of a recognised inflation‑linked bond (assuming there is no requirement to account for an embedded derivative separately) is separately identifiable and reliably measurable as long as other cash flows of the instrument are not affected by the inflation portion.
[
Refer:
Basis for Conclusions paragraphs BC172G–BC172J
]
Designation of non-financial items as hedged items (
paragraph 82
)
AG100
Changes in the price of an ingredient or component of a non‑financial asset or non‑financial liability generally do not have a predictable, separately measurable effect on the price of the item that is comparable to the effect of, say, a change in market interest rates on the price of a bond. Thus, a non‑financial asset or non‑financial liability is a hedged item only in its entirety or for foreign exchange risk. If there is a difference between the terms of the
hedging instrument
and the
hedged item
(such as for a hedge of the forecast purchase of Brazilian coffee using a forward contract to purchase Colombian coffee on otherwise similar terms), the hedging relationship nonetheless can qualify as a hedge relationship provided all the conditions in
paragraph 88
are met, including that the hedge is expected to be highly effective. For this purpose, the amount of the hedging instrument may be greater or less than that of the hedged item if this improves the
effectiveness of the hedging relationship
. For example, a regression analysis could be performed to establish a statistical relationship between the hedged item (eg a transaction in Brazilian coffee) and the hedging instrument (eg a transaction in Colombian coffee). If there is a valid statistical relationship between the two variables (ie between the unit prices of Brazilian coffee and Colombian coffee), the slope of the regression line can be used to establish the hedge ratio that will maximise expected effectiveness. For example, if the slope of the regression line is 1.02, a hedge ratio based on 0.98 quantities of hedged items to 1.00 quantities of the hedging instrument maximises expected effectiveness. However, the hedging relationship may result in ineffectiveness that is recognised in profit or loss during the term of the hedging relationship.
[
Refer:
Basis for Conclusions paragraphs BC137–BC139
]
Designation of groups of items as hedged items
(
paragraphs 83 and 84
)
AG101
A hedge of an overall net position (eg the net of all fixed rate assets and fixed rate liabilities with similar maturities), rather than of a specific
hedged item
, does not qualify for hedge accounting. However, almost the same effect on profit or loss of hedge accounting for this type of hedging relationship can be achieved by designating as the hedged item part of the underlying items. For example, if a bank has CU100 of assets and CU90 of liabilities with risks and terms of a similar nature and hedges the net CU10 exposure, it can designate as the hedged item CU10 of those assets. This designation can be used if such assets and liabilities are fixed rate instruments, in which case it is a fair value hedge, or if they are variable rate instruments, in which case it is a cash flow hedge. Similarly, if an entity has a
firm commitment
to make a purchase in a foreign currency of CU100 and a firm commitment to make a sale in the foreign currency of CU90, it can hedge the net amount of CU10 by acquiring a derivative and designating it as a
hedging instrument
associated with CU10 of the firm purchase commitment of CU100.
[
Refer:
paragraph 81A
]
Hedge accounting (
paragraphs 85–102
)
AG102
An example of a fair value hedge is a hedge of exposure to changes in the fair value of a fixed rate debt instrument as a result of changes in interest rates. Such a hedge could be entered into by the issuer or by the holder.
[
Refer:
paragraph 86(a)
]
AG103
An example of a cash flow hedge is the use of a swap to change floating rate debt to fixed rate debt (ie a hedge of a future transaction where the future cash flows being hedged are the future interest payments).
[
Refer:
paragraph 86(b)
]
AG104
A hedge of a
firm commitment
(eg a hedge of the change in fuel price relating to an unrecognised contractual commitment by an electric utility to purchase fuel at a fixed price) is a hedge of an exposure to a change in
fair value
. Accordingly, such a hedge is a fair value hedge. However, under
paragraph 87
a hedge of the foreign
currency risk
of a firm commitment could alternatively be accounted for as a cash flow hedge.
[
Refer:
paragraphs 86
and
93
Basis for Conclusions paragraphs BC149–BC154
]
Assessing hedge effectiveness
[
Refer:
paragraph 88
Basis for Conclusions paragraphs BC136–BC136B
]
AG105
A hedge is regarded as highly effective only if both of the following conditions are met:
(a)
At the inception of the hedge and in subsequent periods, the hedge is expected to be highly effective in achieving offsetting changes in
fair value
or cash flows attributable to the hedged risk during the period for which the hedge is designated. Such an expectation can be demonstrated in various ways, including a comparison of past changes in the fair value or cash flows of the hedged item that are attributable to the hedged risk with past changes in the fair value or cash flows of the hedging instrument, or by demonstrating a high statistical correlation between the fair value or cash flows of the
hedged item
and those of the
hedging instrument
. The entity may choose a hedge ratio of other than one to one in order to improve the
effectiveness of the hedge
as described in
paragraph AG100
.
[
Refer:
Basis for Conclusions paragraph BC136B
]
(b)
The actual results of the hedge are within a range of 80–125 per cent. For example, if actual results are such that the loss on the
hedging instrument
is CU120 and the gain on the cash instrument is CU100, offset can be measured by 120/100, which is 120 per cent, or by 100/120, which is 83 per cent. In this example, assuming the hedge meets the condition in (a), the entity would conclude that the hedge has been highly effective.
[
Refer:
paragraph 88
]
AG106
Effectiveness
is assessed, at a minimum, at the time an entity prepares its annual or interim financial statements.
[
Refer:
paragraph 88(e)
]
AG107
This Standard does not specify a single method for assessing
hedge effectiveness
. The method an entity adopts for assessing hedge effectiveness depends on its risk management strategy. For example, if the entity’s risk management strategy is to adjust the amount of the
hedging instrument
periodically to reflect changes in the hedged position, the entity needs to demonstrate that the hedge is expected to be highly effective only for the period until the amount of the hedging instrument is next adjusted. In some cases, an entity adopts different methods for different types of hedges. An entity’s documentation of its hedging strategy includes its procedures for assessing effectiveness. Those procedures state whether the assessment includes all of the gain or loss on a hedging instrument or whether the instrument’s time value is excluded.
[
Refer:
paragraph 88
]
AG107A
If an entity hedges less than 100 per cent of the exposure on an item, such as 85 per cent, it shall designate the
hedged item
as being 85 per cent of the exposure and shall measure ineffectiveness based on the change in that designated 85 per cent exposure. However, when hedging the designated 85 per cent exposure, the entity may use a hedge ratio of other than one to one if that improves the expected effectiveness of the hedge, as explained in
paragraph AG100
.
[
Refer:
paragraph 88
Basis for Conclusions paragraph BC136A
]
AG108
If the principal terms of the
hedging instrument
and of the hedged asset, liability,
firm commitment
or highly probable
forecast transaction
are the same, the changes in
fair value
and cash flows attributable to the risk being hedged may be likely to offset each other fully, both when the hedge is entered into and afterwards. For example, an interest rate swap is likely to be an effective hedge if the notional and principal amounts, term, repricing dates, dates of interest and principal receipts and payments, and basis for measuring interest rates are the same for the hedging instrument and the hedged item. In addition, a hedge of a highly probable forecast purchase of a commodity with a forward contract is likely to be highly effective if:
(a)
the forward contract is for the purchase of the same quantity of the same commodity at the same time and location as the hedged forecast purchase;
(b)
the fair value of the forward contract at inception is zero; and
(c)
either the change in the discount or premium on the forward contract is excluded from the assessment of effectiveness and recognised in profit or loss or the change in expected cash flows on the highly probable forecast transaction is based on the forward price for the commodity.
[
Refer:
paragraph 88
]
AG109
Sometimes the
hedging instrument
offsets only part of the hedged risk. For example, a hedge would not be fully effective if the hedging instrument and
hedged item
are denominated in different currencies that do not move in tandem. Also, a hedge of
interest rate risk
using a
derivative
would not be fully effective if part of the change in the
fair value
of the derivative is attributable to the counterparty’s
credit risk
.
[
Refer:
paragraph 88
]
AG110
To qualify for hedge accounting, the hedge must relate to a specific identified and designated risk, and not merely to the entity’s general business risks, and must ultimately affect the entity’s profit or loss. A hedge of the risk of obsolescence of a physical asset or the risk of expropriation of property by a government is not eligible for hedge accounting; effectiveness cannot be measured because those risks are not measurable reliably.
[
Refer:
paragraphs 86
and
88
]
AG110A
Paragraph 74(a)
permits an entity to separate the intrinsic value and time value of an option contract and designate as the
hedging instrument
only the change in the intrinsic value of the option contract. Such a designation may result in a hedging relationship that is perfectly effective in achieving offsetting changes in cash flows attributable to a hedged one‑sided risk of a forecast transaction, if the principal terms of the
forecast transaction
and
hedging instrument
are the same.
[
Refer:
paragraphs BC172D–BC172F
]
AG110B
If an entity designates a purchased option in its entirety as the
hedging instrument
of a one‑sided risk arising from a
forecast transaction
, the hedging relationship will not be perfectly effective. This is because the premium paid for the option includes time value and, as stated in
paragraph AG99BA
, a designated one‑sided risk does not include the time value of an option. Therefore, in this situation, there will be no offset between the cash flows relating to the time value of the option premium paid and the designated hedged risk.
[
Refer:
Basis for Conclusions paragraphs BC172D–BC172F
]
AG111
In the case of
interest rate risk
,
hedge effectiveness
may be assessed by preparing a maturity schedule for
financial assets
and
financial liabilities
that shows the net interest rate exposure for each time period, provided that the net exposure is associated with a specific asset or liability (or a specific group of assets or liabilities or a specific portion of them) giving rise to the net exposure, and hedge effectiveness is assessed against that asset or liability.
[
Refer:
paragraph 88
]
AG112
In assessing the effectiveness of a hedge, an entity generally considers the time value of money. The fixed interest rate on a
hedged item
need not exactly match the fixed interest rate on a swap designated as a fair value hedge. Nor does the variable interest rate on an interest‑bearing asset or liability need to be the same as the variable interest rate on a swap designated as a cash flow hedge. A swap’s fair value derives from its net settlements. The fixed and variable rates on a swap can be changed without affecting the net settlement if both are changed by the same amount.
[
Refer:
paragraph 88
]
AG113
If an entity does not meet
hedge effectiveness
criteria, the entity discontinues hedge accounting from the last date on which compliance with hedge effectiveness was demonstrated. However, if the entity identifies the event or change in circumstances that caused the hedging relationship to fail the effectiveness criteria, and demonstrates that the hedge was effective before the event or change in circumstances occurred, the entity discontinues hedge accounting from the date of the event or change in circumstances.
[
Refer:
paragraphs 88
,
91(b)
and
101(b)
]
AG113A
For the avoidance of doubt, the effects of replacing the original counterparty with a clearing counterparty and making the associated changes as described in paragraphs 91(a)(ii) and 101(a)(ii) shall be reflected in the measurement of the hedging instrument and therefore in the assessment of hedge effectiveness and the measurement of hedge effectiveness.
[
Refer:
Basis for Conclusions paragraph BC220G
]
Fair value hedge accounting for a portfolio hedge of interest rate risk
[
Refer:
paragraphs 81A
and
89A
Basis for Conclusions paragraphs BC173–BC220
]
AG114
For a fair value hedge of interest rate risk associated with a portfolio of financial assets or financial liabilities, an entity would meet the requirements of this Standard if it complies with the procedures set out in (a)–(i) and paragraphs AG115–AG132 below.
(a)
As part of its risk management process the entity identifies a portfolio of items whose interest rate risk it wishes to hedge. The portfolio may comprise only assets, only liabilities or both assets and liabilities. The entity may identify two or more portfolios, in which case it applies the guidance below to each portfolio separately.
[
Refer:
paragraph AG116
]
(b)
The entity analyses the portfolio into repricing time periods based on expected, rather than contractual, repricing dates. The analysis into repricing time periods may be performed in various ways including scheduling cash flows into the periods in which they are expected to occur, or scheduling notional principal amounts into all periods until repricing is expected to occur.
[
Refer:
paragraph AG117
]
(c)
On the basis of this analysis, the entity decides the amount it wishes to hedge. The entity designates as the
hedged item
an amount of assets or liabilities (but not a net amount) from the identified portfolio equal to the amount it wishes to designate as being hedged. This amount also determines the percentage measure that is used for testing
effectiveness
in accordance with
paragraph AG126(b)
.
[
Refer:
paragraph AG118
]
(d)
The entity designates the interest rate risk it is hedging. This risk could be a portion of the interest rate risk in each of the items in the hedged position, such as a benchmark interest rate (eg LIBOR).
(e)
The entity designates one or more
hedging instruments
for each repricing time period.
[
Refer:
paragraph AG120
]
(f)
Using the designations made in (c)–(e) above, the entity assesses at inception and in subsequent periods, whether the hedge is expected to be highly effective during the period for which the hedge is designated.
(g)
Periodically, the entity measures the change in the
fair value
of the hedged item (as designated in (c)) that is attributable to the hedged risk (as designated in (d)), on the basis of the expected repricing dates determined in (b). Provided that the hedge is determined actually to have been highly effective when assessed using the entity’s documented method of assessing effectiveness, the entity recognises the change in fair value of the hedged item as a gain or loss in profit or loss and in one of two line items in the statement of financial position as described in
paragraph 89A
. The change in fair value need not be allocated to individual assets or liabilities.
[
Refer:
paragraphs AG121–AG131
Illustrative Example paragraphs IE14
,
IE24
and
IE28
]
(h)
The entity measures the change in fair value of the hedging instrument(s) (as designated in (e)) and recognises it as a gain or loss in profit or loss. The fair value of the hedging instrument(s) is recognised as an asset or liability in the statement of financial position.
[
Refer:
Illustrative Example paragraphs IE14
,
IE24
and
IE28
]
(i)
Any ineffectiveness
3
will be recognised in profit or loss as the difference between the change in fair value referred to in (g) and that referred to in (h).
[
Refer:
paragraph AG124
Illustrative Example paragraphs IE15
and
IE25
]
AG115
This approach is described in more detail below. The approach shall be applied only to a fair value hedge of the
interest rate risk
associated with a portfolio of
financial assets
or
financial liabilities
.
AG116
The portfolio identified in
paragraph AG114(a)
could contain assets and liabilities. Alternatively, it could be a portfolio containing only assets, or only liabilities. The portfolio is used to determine the amount of the assets or liabilities the entity wishes to hedge. However, the portfolio is not itself designated as the
hedged item
.
AG117
In applying
paragraph AG114(b)
, the entity determines the expected repricing date of an item as the earlier of the dates when that item is expected to mature or to reprice to market rates. The expected repricing dates are estimated at the inception of the hedge and throughout the term of the hedge, based on historical experience and other available information, including information and expectations regarding prepayment rates, interest rates and the interaction between them. Entities that have no entity‑specific experience or insufficient experience use peer group experience for comparable
financial instruments
. These estimates are reviewed periodically and updated in the light of experience. In the case of a fixed rate item that is prepayable, the expected repricing date is the date on which the item is expected to prepay unless it reprices to market rates on an earlier date. For a group of similar items, the analysis into time periods based on expected repricing dates may take the form of allocating a percentage of the group, rather than individual items, to each time period. An entity may apply other methodologies for such allocation purposes. For example, it may use a prepayment rate multiplier for allocating amortising loans to time periods based on expected repricing dates. However, the methodology for such an allocation shall be in accordance with the entity’s risk management procedures and objectives.
AG118
As an example of the designation set out in
paragraph AG114(c)
, if in a particular repricing time period an entity estimates that it has fixed rate assets of CU100 and fixed rate liabilities of CU80 and decides to hedge all of the net position of CU20, it designates as the hedged item assets in the amount of CU20 (a portion of the assets).
4
The designation is expressed as an ‘amount of a currency’ (eg an amount of dollars, euro, pounds or rand) rather than as individual assets. It follows that all of the assets (or liabilities) from which the hedged amount is drawn—ie all of the CU100 of assets in the above example—must be:
(a)
items whose
fair value
changes in response to changes in the interest rate being hedged; and
(b)
items that could have qualified for fair value hedge accounting if they had been designated as hedged individually. In particular, because IFRS 13 specifies that the fair value of a financial liability with a demand feature (such as demand deposits and some types of time deposits) is not less than the amount payable on demand, discounted from the first date that the amount could be required to be paid, such an item cannot qualify for fair value hedge accounting for any time period beyond the shortest period in which the holder can demand payment. In the above example, the hedged position is an amount of assets. Hence, such liabilities are not a part of the designated hedged item, but are used by the entity to determine the amount of the asset that is designated as being hedged. If the position the entity wished to hedge was an amount of liabilities, the amount representing the designated hedged item must be drawn from fixed rate liabilities other than liabilities that the entity can be required to repay in an earlier time period, and the percentage measure used for assessing hedge effectiveness in accordance with
paragraph AG126(b)
would be calculated as a percentage of these other liabilities. For example, assume that an entity estimates that in a particular repricing time period it has fixed rate liabilities of CU100, comprising CU40 of demand deposits and CU60 of liabilities with no demand feature, and CU70 of fixed rate assets. If the entity decides to hedge all of the net position of CU30, it designates as the hedged item liabilities of CU30 or 50 per cent of the liabilities
5
with no demand feature.
AG119
The entity also complies with the other designation and documentation requirements set out in
paragraph 88(a)
. For a portfolio hedge of
interest rate risk
, this designation and documentation specifies the entity’s policy for all of the variables that are used to identify the amount that is hedged and how
effectiveness
is measured, including the following:
(a)
which assets and liabilities are to be included in the portfolio hedge and the basis to be used for removing them from the portfolio.
(b)
how the entity estimates repricing dates, including what interest rate assumptions underlie estimates of prepayment rates and the basis for changing those estimates. The same method is used for both the initial estimates made at the time an asset or liability is included in the hedged portfolio and for any later revisions to those estimates.
(c)
the number and duration of repricing time periods.
(d)
how often the entity will test effectiveness and which of the two methods in
paragraph AG126
it will use.
(e)
the methodology used by the entity to determine the amount of assets or liabilities that are designated as the
hedged item
and, accordingly, the percentage measure used when the entity tests effectiveness using the method described in
paragraph AG126(b)
.
(f)
when the entity tests effectiveness using the method described in
paragraph AG126(b)
, whether the entity will test effectiveness for each repricing time period individually, for all time periods in aggregate, or by using some combination of the two.
The policies specified in designating and documenting the hedging relationship shall be in accordance with the entity’s risk management procedures and objectives. Changes in policies shall not be made arbitrarily. They shall be justified on the basis of changes in market conditions and other factors and be founded on and consistent with the entity’s risk management procedures and objectives.
AG120
The
hedging instrument
referred to in
paragraph AG114(e)
may be a single
derivative
or a portfolio of derivatives all of which contain exposure to the hedged
interest rate risk
designated in
paragraph AG114(d)
(eg a portfolio of interest rate swaps all of which contain exposure to LIBOR). Such a portfolio of derivatives may contain offsetting risk positions. However, it may not include written options or net written options, because the Standard
6
does not permit such options to be designated as hedging instruments (except when a written option is designated as an offset to a purchased option). If the hedging instrument hedges the amount designated in
paragraph AG114(c)
for more than one repricing time period, it is allocated to all of the time periods that it hedges. However, the whole of the hedging instrument must be allocated to those repricing time periods because the Standard
7
does not permit a hedging relationship to be designated for only a portion of the time period during which a hedging instrument remains outstanding.
AG121
When the entity measures the change in the
fair value
of a prepayable item in accordance with
paragraph AG114(g)
, a change in interest rates affects the fair value of the prepayable item in two ways: it affects the fair value of the contractual cash flows and the fair value of the prepayment option that is contained in a prepayable item.
Paragraph 81
of the Standard permits an entity to designate a portion of a
financial asset
or
financial liability
, sharing a common risk exposure, as the hedged item, provided
effectiveness
can be measured. For prepayable items, paragraph 81A permits this to be achieved by designating the
hedged item
in terms of the change in the fair value that is attributable to changes in the designated interest rate on the basis of
expected
, rather than
contractual
, repricing dates. However, the effect that changes in the hedged interest rate have on those expected repricing dates shall be included when determining the change in the fair value of the hedged item. Consequently, if the expected repricing dates are revised (eg to reflect a change in expected prepayments), or if actual repricing dates differ from those expected, ineffectiveness will arise as described in
paragraph AG126
. Conversely, changes in expected repricing dates that (a) clearly arise from factors other than changes in the hedged interest rate, (b) are uncorrelated with changes in the hedged interest rate and (c) can be reliably separated from changes that are attributable to the hedged interest rate (eg changes in prepayment rates clearly arising from a change in demographic factors or tax regulations rather than changes in interest rate) are excluded when determining the change in the fair value of the hedged item, because they are not attributable to the hedged risk. If there is uncertainty about the factor that gave rise to the change in expected repricing dates or the entity is not able to separate reliably the changes that arise from the hedged interest rate from those that arise from other factors, the change is assumed to arise from changes in the hedged interest rate.
AG122
The Standard does not specify the techniques used to determine the amount referred to in
paragraph AG114(g)
, namely the change in the
fair value
of the
hedged item
that is attributable to the hedged risk. If statistical or other estimation techniques are used for such measurement, management must expect the result to approximate closely that which would have been obtained from measurement of all the individual assets or liabilities that constitute the hedged item. It is not appropriate to assume that changes in the fair value of the hedged item equal changes in the value of the
hedging instrument
.
AG123
Paragraph 89A
requires that if the
hedged item
for a particular repricing time period is an asset, the change in its value is presented in a separate line item within assets. Conversely, if the hedged item for a particular repricing time period is a liability, the change in its value is presented in a separate line item within liabilities. These are the separate line items referred to in
paragraph AG114(g)
. Specific allocation to individual assets (or liabilities) is not required.
AG124
Paragraph AG114(i)
notes that ineffectiveness arises to the extent that the change in the fair value of the
hedged item
that is attributable to the hedged risk differs from the change in the
fair value
of the hedging
derivative
. Such a difference may arise for a number of reasons, including:
(a)
actual repricing dates being different from those expected, or expected repricing dates being revised;
(b)
items in the hedged portfolio becoming impaired or being
derecognised
;
(c)
the payment dates of the
hedging instrument
and the hedged item being different; and
(d)
other causes (eg when a few of the hedged items bear interest at a rate below the benchmark rate for which they are designated as being hedged, and the resulting ineffectiveness is not so great that the portfolio as a whole fails to qualify for hedge accounting).
Such ineffectiveness
8
shall be identified and recognised in profit or loss.
AG125
Generally, the
effectiveness
of the hedge will be improved:
(a)
if the entity schedules items with different prepayment characteristics in a way that takes account of the differences in prepayment behaviour.
(b)
when the number of items in the portfolio is larger. When only a few items are contained in the portfolio, relatively high ineffectiveness is likely if one of the items prepays earlier or later than expected. Conversely, when the portfolio contains many items, the prepayment behaviour can be predicted more accurately.
(c)
when the repricing time periods used are narrower (eg 1‑month as opposed to 3‑month repricing time periods). Narrower repricing time periods reduce the effect of any mismatch between the repricing and payment dates (within the repricing time period) of the
hedged item
and those of the
hedging instrument
.
(d)
the greater the frequency with which the amount of the hedging instrument is adjusted to reflect changes in the hedged item (eg because of changes in prepayment expectations).
AG126
An entity tests
effectiveness
periodically. If estimates of repricing dates change between one date on which an entity assesses effectiveness and the next, it shall calculate the amount of effectiveness either:
(a)
as the difference between the change in the
fair value
of the
hedging instrument
(see
paragraph AG114(h)
) and the change in the value of the entire
hedged item
that is attributable to changes in the hedged interest rate (including the effect that changes in the hedged interest rate have on the fair value of any embedded prepayment option); or
(b)
using the following approximation. The entity:
(i)
calculates the percentage of the assets (or liabilities) in each repricing time period that was hedged, on the basis of the estimated repricing dates at the last date it tested effectiveness.
(ii)
applies this percentage to its revised estimate of the amount in that repricing time period to calculate the amount of the hedged item based on its revised estimate.
(iii)
calculates the change in the fair value of its revised estimate of the hedged item that is attributable to the hedged risk and presents it as set out in
paragraph AG114(g)
.
(iv)
recognises ineffectiveness equal to the difference between the amount determined in (iii) and the change in the fair value of the hedging instrument (see
paragraph AG114(h)
).
[
Refer:
Illustrative Example paragraphs IE13–IE15
]
AG127
When measuring
effectiveness
, the entity distinguishes revisions to the estimated repricing dates of existing assets (or liabilities) from the origination of new assets (or liabilities), with only the former giving rise to ineffectiveness. All revisions to estimated repricing dates (other than those excluded in accordance with
paragraph AG121
), including any reallocation of existing items between time periods, are included when revising the estimated amount in a time period in accordance with
paragraph AG126(b)(ii)
and hence when measuring effectiveness. Once ineffectiveness has been recognised as set out above, the entity establishes a new estimate of the total assets (or liabilities) in each repricing time period, including new assets (or liabilities) that have been originated since it last tested effectiveness, and designates a new amount as the
hedged item
and a new percentage as the hedged percentage. The procedures set out in
paragraph AG126(b)
are then repeated at the next date it tests effectiveness.
[
Refer:
Basis for Conclusions paragraph BC205
Illustrative Example paragraph IE19
]
AG128
Items that were originally scheduled into a repricing time period may be
derecognised
because of earlier than expected prepayment or write‑offs caused by impairment or sale. When this occurs, the amount of change in
fair value
included in the separate line item referred to in
paragraph AG114(g)
that relates to the derecognised item shall be removed from the statement of financial position, and included in the gain or loss that arises on derecognition of the item. For this purpose, it is necessary to know the repricing time period(s) into which the derecognised item was scheduled, because this determines the repricing time period(s) from which to remove it and hence the amount to remove from the separate line item referred to in
paragraph AG114(g)
. When an item is derecognised, if it can be determined in which time period it was included, it is removed from that time period. If not, it is removed from the earliest time period if the derecognition resulted from higher than expected prepayments, or allocated to all time periods containing the derecognised item on a systematic and rational basis if the item was sold or became impaired.
[
Refer:
Illustrative Example paragraphs IE16–IE18
]
AG129
In addition, any amount relating to a particular time period that has not been
derecognised
when the time period expires is recognised in profit or loss at that time (see
paragraph 89A
). For example, assume an entity schedules items into three repricing time periods. At the previous redesignation, the change in
fair value
reported in the single line item in the statement of financial position was an asset of CU25. That amount represents amounts attributable to periods 1, 2 and 3 of CU7, CU8 and CU10, respectively. At the next redesignation, the assets attributable to period 1 have been either realised or rescheduled into other periods. Therefore, CU7 is derecognised from the statement of financial position and recognised in profit or loss. CU8 and CU10 are now attributable to periods 1 and 2, respectively. These remaining periods are then adjusted, as necessary, for changes in fair value as described in
paragraph AG114(g)
.
AG130
As an illustration of the requirements of the previous two paragraphs, assume that an entity scheduled assets by allocating a percentage of the portfolio into each repricing time period. Assume also that it scheduled CU100 into each of the first two time periods. When the first repricing time period expires, CU110 of assets are
derecognised
because of expected and unexpected repayments. In this case, all of the amount contained in the separate line item referred to in
paragraph AG114(g)
that relates to the first time period is removed from the statement of financial position, plus 10 per cent of the amount that relates to the second time period.
AG131
If the hedged amount for a repricing time period is reduced without the related assets (or liabilities) being
derecognised
, the amount included in the separate line item referred to in
paragraph AG114(g)
that relates to the reduction shall be amortised in accordance with
paragraph 92
.
[
Refer:
Illustrative Example paragraphs IE21, IE22
,
IE26
and
IE30
]
AG132
An entity may wish to apply the approach set out in
paragraphs AG114–AG131
to a portfolio hedge that had previously been accounted for as a cash flow hedge in accordance with IAS 39. Such an entity would revoke the previous designation of a cash flow hedge in accordance with
paragraph 101(d)
, and apply the requirements set out in that paragraph. It would also redesignate the hedge as a fair value hedge and apply the approach set out in
paragraphs AG114–AG131
prospectively to subsequent accounting periods.
[
Refer:
Basis for Conclusions paragraph BC219
]
Transition (
paragraphs 103–108C
)
AG133
An entity may have designated a forecast intragroup transaction as a
hedged item
at the start of an annual period beginning on or after 1 January 2005 (or, for the purpose of restating comparative information, the start of an earlier comparative period) in a hedge that would qualify for hedge accounting in accordance with this Standard (as amended by the last sentence of
paragraph 80
). Such an entity may use that designation to apply hedge accounting in consolidated financial statements from the start of the annual period beginning on or after 1 January 2005 (or the start of the earlier comparative period). Such an entity shall also apply
paragraphs AG99A and AG99B
from the start of the annual period beginning on or after 1 January 2005. However, in accordance with
paragraph 108B
, it need not apply
paragraph AG99B
to comparative information for earlier periods.
[
Refer:
paragraphs 108A and 108B
]
Appendix B
Amendments to other pronouncements
The amendments in this appendix shall be applied for annual periods beginning on or after 1 January 2005. If an entity applies this Standard for an earlier period, these amendments shall be applied for that earlier period.
* * * * *
The amendments contained in this appendix when this Standard was revised in 2003 have been incorporated into the relevant pronouncements.
Board Approvals
Approval by the Board of
Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk
(Amendments to IAS 39) issued in March 2004
Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk
(Amendments to IAS 39) was approved for issue by thirteen of the fourteen members of the International Accounting Standards Board. Mr Smith dissented. His dissenting opinion is set out after the Basis for Conclusions.
Sir David Tweedie
Chairman
Thomas E Jones
Vice‑Chairman
Mary E Barth
Hans‑Georg Bruns
Anthony T Cope
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
Harry K Schmid
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the Board of
Transition and Initial Recognition of Financial Assets and Financial Liabilities
(Amendments to IAS 39) issued in December 2004
Transition and Initial Recognition of Financial Assets and Financial Liabilities
(Amendments to IAS 39) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice‑Chairman
Mary E Barth
Hans‑Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the Board of
Cash Flow Hedge Accounting of Forecast Intragroup Transactions
(Amendments to IAS 39) issued in April 2005
Cash Flow Hedge Accounting of Forecast Intragroup Transactions
(Amendments to IAS 39) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice‑Chairman
Mary E Barth
Hans‑Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the Board of
Financial Guarantee Contracts
(Amendments to IAS 39 and IFRS 4) issued in August 2005
Financial Guarantee Contracts
(Amendments to IAS 39 and IFRS 4
Insurance Contracts
) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice‑Chairman
Mary E Barth
Hans‑Georg Bruns
Anthony T Cope
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
Patricia L O’Malley
John T Smith
Geoffrey Whittington
Tatsumi Yamada
Approval by the Board of
Eligible Hedged Items
(Amendment to IAS 39) issued in July 2008
Eligible Hedged Items
(Amendment to IAS 39) was approved for issue by the thirteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice-Chairman
Mary E Barth
Stephen Cooper
Philippe Danjou
Jan Engström
Robert P Garnett
Gilbert Gélard
James J Leisenring
Warren J McGregor
John T Smith
Tatsumi Yamada
Wei-Guo Zhang
Approval by the Board of
Embedded Derivatives
(Amendments to IFRIC 9 and IAS 39) issued in March 2009
Embedded Derivatives
(Amendments to IFRIC 9 and IAS 39) was approved for issue by the fourteen members of the International Accounting Standards Board.
Sir David Tweedie
Chairman
Thomas E Jones
Vice-Chairman
Mary E Barth
Stephen Cooper
Philippe Danjou
Jan Engström
Robert P Garnett
Gilbert Gélard
Prabhakar Kalavacherla
James J Leisenring
Warren J McGregor
John T Smith
Tatsumi Yamada
Wei-Guo Zhang
Approval by the Board of
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments to IAS 39) issued in June 2013
Novation of Derivatives and Continuation of Hedge Accounting
was approved for issue by the sixteen members of the International Accounting Standards Board.
Hans Hoogervorst
Chairman
Ian Mackintosh
Vice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Jan Engström
Patrick Finnegan
Amaro Luiz de Oliveira Gomes
Gary Kabureck
Prabhakar Kalavacherla
Patricia McConnell
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang
Approval by the Board of
Financial Instruments
(Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) issued in November 2013
Financial Instruments
(Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) was approved for issue by fifteen of the sixteen members of the International Accounting Standards Board. Mr Finnegan dissented. His dissenting opinion is set out after the Basis for Conclusions.
Hans Hoogervorst
Chairman
Ian Mackintosh
Vice-Chairman
Stephen Cooper
Philippe Danjou
Martin Edelmann
Jan Engström
Patrick Finnegan
Amaro Luiz de Oliveira Gomes
Gary Kabureck
Prabhakar Kalavacherla
Patricia McConnell
Takatsugu Ochi
Darrel Scott
Chungwoo Suh
Mary Tokar
Wei-Guo Zhang
Approval by the Board of
Interest Rate Benchmark Reform
issued in September 2019
Interest Rate Benchmark Reform
, which amended
,
and
, was approved for issue by all 14 members of the International Accounting Standards Board (Board).
Hans Hoogervorst
Chairman
Suzanne Lloyd
Vice‑Chair
Nick Anderson
Tadeu Cendon
Martin Edelmann
Françoise Flores
Gary Kabureck
Jianqiao Lu
Darrel Scott
Thomas Scott
Chungwoo Suh
Rika Suzuki
Ann Tarca
Mary Tokar
Approval by the Board of
Interest Rate Benchmark Reform—Phase 2
issued in August 2020
Interest Rate Benchmark Reform—Phase 2
, which amended IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, was approved for issue by 12 of 13 members of the International Accounting Standards Board (Board). Mr Gast abstained in view of his recent appointment to the Board.
Hans Hoogervorst
Chairman
Suzanne Lloyd
Vice-Chair
Nick Anderson
Tadeu Cendon
Martin Edelmann
Françoise Flores
Zach Gast
Jianqiao Lu
Darrel Scott
Thomas Scott
Rika Suzuki
Ann Tarca
Mary Tokar
Footnotes
1
IFRIC 9 was superseded by IFRS 9
Financial Instruments
, issued in October 2010.
(back)
2
The report, 'Reforming Major Interest Rate Benchmarks', is available at
http://www.fsb.org/wp-content/uploads/r_140722.pdf
.
(back)
3
The same materiality considerations apply in this context as apply throughout IFRSs.
(back)
4
The Standard permits an entity to designate any amount of the available qualifying assets or liabilities, ie in this example any amount of assets between CU0 and CU100.
(back)
5
CU30 ÷ (CU100 – CU40) = 50 per cent
(back)
6
see
paragraphs 77
and
AG94
(back)
7
see
paragraph 75
(back)
8
The same materiality considerations apply in this context as apply throughout IFRSs.
(back)
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