of the transaction or other event); and
(b) the change in the entity’s assets and liabilities as a result of that transaction or
other event
and goes on to explain that those aims are normally achieved by:22
• derecognising any assets or liabilities that have been transferred, consumed,
collected or fulfilled, or have expired and recognising any resulting income or
expense (the transferred component);
• continuing to recognise the assets or liabilities retained, if any (the retained
component), which become a separate unit of account. Accordingly, no income or
expenses are recognised on the retained component as a result of the derecognition
of the transferred component, unless the derecognition results in a change in the
measurement requirements applicable to the retained component; and
• applying one or more of the following procedures, if that is necessary to achieve
one or both of those aims:
• presenting any retained component separately in the statement of financial
position;
• presenting separately in the statement(s) of financial performance any income
and expenses recognised as a result of the derecognition of the transferred
component; or
• providing explanatory information.
While this has no effect on the present accounting for derecognition of financial assets,
it may have effect in the future if and when the IASB decides to rewrite the requirements
for derecognition of financial instruments.
Financial
instruments:
Derecognition
3961
The IASB’s Conceptual Framework for Financial Reporting is discussed in Chapter 2
(see Chapter 2 at 8.3).
References
1
IFRIC Update, January 2007.
12 Information for Observers, IFRIC, March 2006.
2
IFRIC Update, May 2006.
13 IASB Update, September 2006.
3
IASB Update, September 2006.
14 IASB Update, September 2006.
4
IASB Update, September 2006.
15 IFRIC Update, November 2005.
5
IFRIC Update, May 2016.
16 In practice, other factors might be relevant to
6
Staff Paper (May
2012 Interpretations
the valuation.
Committee Meeting), IAS
39 Financial 17 The fair value of an in the money option is positive
Instruments: Recognition and Measurement –
for the buyer and negative for the writer.
Derecognition of financial assets (Agenda 18 IFRIC Update, November 2016.
reference 10-A), IASB, May 2012, paras. 32
19 IASB Update, April 2017.
to 36.
20 Press Release 74/14, FRC urges clarity in the
7
IFRIC Update, September 2012.
reporting of complex supplier arrangements by
8
IFRIC Update, September 2012.
retailers and other businesses, FRC, December
9
Information for Observers, IFRIC, March 2006.
2014.
10 IFRIC Update, November 2005.
21 Conceptual Framework for Financial Reporting,
11 IASB Update, September 2006.
IASB, paras. 5.27-5.28.
3962 Chapter 48
3963
Chapter 49
Financial instruments:
Hedge accounting
1 INTRODUCTION .......................................................................................... 3973
1.1
Background .......................................................................................................... 3973
1.2 What
is
hedge
accounting? ............................................................................... 3973
1.3
Development of hedge accounting standards ............................................... 3975
1.4 Objective
of
hedge accounting ........................................................................ 3977
1.5
Hedge accounting overview ............................................................................. 3977
2 HEDGED ITEMS ........................................................................................... 3978
2.1
General requirements ....................................................................................... 3978
2.2 Risk
components
...............................................................................................
3980
2.2.1
General requirements ....................................................................... 3980
2.2.2 Contractually
specified risk components ..................................... 3982
2.2.3 Non-contractually
specified risk components ............................ 3983
2.2.3.A
Non-contractual risk components in financial
instruments ..................................................................... 3984
2.2.3.B
Non-contractual risk components in non-
financial instruments .................................................... 3984
2.2.4
Partial term hedging .......................................................................... 3986
2.2.5
Foreign currency as a risk component .......................................... 3987
2.2.6
Inflation as a risk component .......................................................... 3989
2.3
Components of a nominal amount ................................................................. 3990
2.3.1
General requirement ......................................................................... 3990
2.3.2
Layer component for fair value hedges ......................................... 3991
2.4
The ‘sub-LIBOR issue’ ...................................................................................... 3994
2.4.1
Late hedges of benchmark portions of fixed rate
instruments ......................................................................................... 3997
2.4.2 Negative
interest
rates
......................................................................
3998
3964 Chapter 49
2.5
Groups of items .................................................................................................. 3998
2.5.1
General requirements ....................................................................... 3998
2.5.2
Hedging a component of a group ................................................... 3999
2.5.3
Cash flow hedge of a net position ................................................. 4000
2.5.4 Nil
net
positions ................................................................................. 4004
2.6
Other eligibility issues for hedged items ....................................................... 4004
2.6.1
Highly probable ................................................................................. 4004
2.6.2
Hedged items held at fair value through p
rofit or loss............... 4005
2.6.2.A
Hedged items managed on a fair value basis ........... 4006
2.6.2.B
Hedged items held for trading .................................... 4007
2.6.2.C
Hedged items that have failed the contractual
cash flows test ................................................................ 4008
2.6.3
Hedges of exposures affecting other comprehensive
income ................................................................................................. 4008
2.6.4
Hedges of a firm commitment to acquire a business ................. 4008
2.6.5
Forecast acquisition or issuance of foreign currency
monetary items .................................................................................. 4008
2.6.6
Own equity instruments ................................................................... 4009
2.6.7 Core
deposits
......................................................................................
4009
2.7
Aggregated exposures ....................................................................................... 4010
2.7.1
Introduction ........................................................................................ 4010
2.7.2 Background
..........................................................................................
4011
2.7.3
Accounting for aggregated exposures ............................................ 4013
3 HEDGING INSTRUMENTS .......................................................................... 4020
3.1
General requirements ....................................................................................... 4020
3.2
Derivatives as hedging instruments ................................................................ 4020
3.2.1
Offsetting external derivatives ........................................................ 4021
3.2.2
Net written options ........................................................................... 4021
3.2.3 Embedded
derivatives
......................................................................
4023
3.2.4 Credit
break
clauses
..........................................................................
4024
3.2.5 Basis
swaps
..........................................................................................
4024
3.3
Non-derivative financial instruments ............................................................ 4025
3.3.1
Hedge of foreign currency risk by a non-derivative financial
instrument ............................................................................................ 4025
3.4
Own equity instruments ................................................................................... 4026
3.5 Combinations
of
instruments .......................................................................... 4027
3.6
Portions and proportions of hedging instruments ...................................... 4027
3.6.1
Proportions of instruments .............................................................. 4028
3.6.2 Notional
decomposition ................................................................... 4028
3.6.3
Restructuring of derivatives ............................................................ 4028
Financial instruments: Hedge accounting 3965
3.6.4
Time value of options ....................................................................... 4028
3.6.5
Forward element of a forward contract and foreign currency
basis spread .......................................................................................... 4029
3.6.6
Hedges of a portion of a time period ............................................. 4029
3.7
Hedging different risks with one instrument ............................................... 4030
4 INTERNAL HEDGES AND OTHER GROUP ACCOUNTING ISSUES .............. 4032
4.1
Internal hedging instruments ........................................................................... 4033
4.1.1
Central clearing parties and ring fencing of banks ..................... 4035
4.2
Offsetting internal hedging instruments ........................................................ 4035
4.2.1
Interest rate risk ................................................................................. 4035
4.2.2
Foreign exchange risk ....................................................................... 4037
4.3
Internal hedged items ....................................................................................... 4044
4.3.1
Intragroup monetary items .............................................................. 4044
4.3.2 Forecast
intragroup transactions .................................................... 4045
4.4
Hedged item and hedging instrument held by different group
entities .................................................................................................................. 4045
5 TYPES OF HEDGING RELATIONSHIPS ........................................................ 4046
5.1
Fair value hedges ............................................................................................... 4046
5.1.1
Hedges of firm commitments .......................................................... 4047
5.1.2
Hedges of foreign currency monetary items................................ 4047
5.2
Cash flow hedges ............................................................................................... 4048
5.2.1
All-in-one hedges .............................................................................. 4048
5.2.2
Hedges of firm commitments .......................................................... 4049
5.2.3
Hedges of foreign currency monetary items................................ 4049
5.3
Hedges of net investments in foreign operations ........................................ 4050
5.3.1
Nature of the hedged risk ................................................................. 4051
5.3.2
Amount of the hedged item for which a hedging
relationship may be designated ...................................................... 4052
5.3.3
Where the hedging instrument can be held ................................. 4053
6 QUALIFYING CRITERIA ............................................................................... 4054
6.1
General requirements ....................................................................................... 4054
6.2
Risk management strategy versus risk management objective ................ 4055
6.2.1
Designating ‘proxy hedges’ .............................................................. 4057
6.3
Documentation and designation .............
........................................................ 4058
6.3.1
Business combinations ..................................................................... 4059
6.3.2
Dynamic hedging strategies ............................................................. 4060
6.3.3 Forecast
transactions ........................................................................ 4060
6.4
Assessing the hedge effectiveness requirements ........................................ 4061
6.4.1
Economic relationship ...................................................................... 4062
3966 Chapter 49
6.4.2
Credit risk and the effectiveness assessment ............................... 4065
6.4.2.A
Credit risk on the hedging instrument ...................... 4065
6.4.2.B
Credit risk on the hedged item .................................. 4066
6.4.3
The hedge ratio .................................................................................. 4069
7 ACCOUNTING FOR EFFECTIVE HEDGES .................................................... 4071
7.1
Fair value hedges ................................................................................................ 4071
7.1.1
Ongoing fair value hedge accounting ............................................. 4071
7.1.2
Dealing with adjustments to the hedged item ............................. 4073
7.2
Cash flow hedges ............................................................................................... 4075
7.2.1
Ongoing cash flow hedge accounting ............................................ 4075
7.2.2 Reclassification of gains and losses recognised in cash
flow hedge reserve from OCI to profit or loss .............................. 4077
7.2.3
Recycling for a hedge of foreign currency monetary items ...... 4079
7.2.4
Cash flow hedges within subsidiaries on acquisition or
disposal ................................................................................................ 4080
7.3
Accounting for hedges of a net investment in a foreign operation ......... 4080
7.3.1
Identifying the effective portion in a net investment hedge .... 4081
7.3.2 Non-derivative
liabilities
hedging a net investment ................... 4082
7.3.3 Derivatives
hedging
a net investment ........................................... 4083
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 784
