• trust and other fiduciary activities that result in the holding or investing of assets
on behalf of individuals, trusts, retirement benefit plans, and other institutions.
This information is said to indicate the level of such activities and help users to estimate
possible future income of the entity. [IFRS 7.BC35].
4.3 Hedge
accounting
IFRS 9 has expanded significantly the disclosure requirements in respect of hedge
accounting when compared to the requirements under IAS 39. Those requirements are
also supplemented by some detailed implementation guidance. The hedge accounting
requirements of IFRS 9 are dealt with in Chapter 49 which includes some discussion of
the disclosure requirements set out below.
Under IFRS 9 an entity may choose to continue applying certain, or all, of the hedge
accounting requirements of IAS 39 rather than those in IFRS 9 (see Chapter 49 at 11.2).
In these circumstances the disclosure requirements introduced by IFRS 9 should be
followed, rather than those that previously applied under IAS 39. [IFRS 9.BC6.104].
The requirements set out at 4.3.1 to 4.3.4 below apply for those risk exposures that an
entity hedges and for which it elects to apply hedge accounting. The objective of these
disclosures is to provide information about: [IFRS 7.21A]
• the entity’s risk management strategy and how it is applied to manage risk
(see 4.3.1 below);
Financial
instruments:
Presentation and disclosure 4177
• how the entity’s hedging activities may affect the amount, timing and uncertainty
of its future cash flows (see 4.3.2 below); and
• the effect that hedge accounting has had on the entity’s statement of financial
position, statement of comprehensive income and statement of changes in equity
(see 4.3.3 and 4.3.4 below).
In order to meet these objectives, an entity will need to determine how much detail to
disclose, how much emphasis to place on different aspects of the disclosure
requirements, the appropriate level of aggregation or disaggregation and whether
additional explanations are needed to evaluate the quantitative information disclosed.
The level of aggregation or disaggregation should be consistent with that used for
meeting the disclosure requirements of related information elsewhere in IFRS 7 and in
IFRS 13 (see Chapter 14 at 20.1.2). [IFRS 7.21D].
Some of the disclosure requirements at 4.3.1 to 4.3.3 below are required to be given by
‘risk category’. This is not a defined term, but each risk category should be determined
on the basis of the risk exposures an entity decides to hedge and for which hedge
accounting is applied. These categories should be determined consistently for all hedge
accounting disclosures. [IFRS 7.21C].
These disclosures should be presented in a single note or separate section of the
financial statements. To avoid duplication, IFRS 7 allows this information to be
incorporated by cross-reference from the financial statements to some other statement
that is available to users of the financial statements on the same terms and at the same
time, such as a management commentary or risk report. Without the information
incorporated by cross-reference, the financial statements are incomplete. [IFRS 7.21B].
4.3.1
The risk management strategy
An entity should explain its risk management strategy for each risk category of risk
exposures that it decides to hedge and for which hedge accounting is applied. This
explanation should enable users of financial statements to evaluate, for example: [IFRS 7.22A]
• how each risk arises;
• how each risk is managed.
This includes whether the entity hedges an item in its entirety for all risks or hedges
a risk component (or components) of an item and why; and
• the extent of risk exposures that are managed.
To meet these requirements, the information should include, but is not limited to, a
description of: [IFRS 7.22B]
• the hedging instruments that are used (and how they are used) to hedge risk exposures;
• how the economic relationship between the hedged item and the hedging
instrument is determined for the purpose of assessing hedge effectiveness;
• how the hedge ratio is established; and
• the sources of hedge ineffectiveness.
4178 Chapter 50
When a specific risk component is designated as a hedged item, qualitative or
quantitative information should be provided about: [IFRS 7.22C]
• how the risk component that is designated as the hedged item was determined,
including a description of the nature of the relationship between the risk
component and the item as a whole; and
• how the risk component relates to the item in its entirety. For example, the
designated risk component may historically have covered on average 80% of the
changes in fair value of the item as a whole.
4.3.2
The amount, timing and uncertainty of future cash flows
For most hedge relationships, quantitative information should be disclosed by risk category
that allows the evaluation of the terms and conditions of the hedging instruments and how
they affect the amount, timing and uncertainty of future cash flows. [IFRS 7.23A]. This should
include a breakdown disclosing the profile of the timing of the hedging instrument’s
nominal amount and, if applicable, its average price or rate (e.g. strike or forward prices).
[IFRS 7.23B]. This requirement applies to cash flow hedges, fair value hedges, and hedges of
a net investment, and meeting this requirement with concise information could prove
challenging where an entity’s use of hedge accounting is extensive.
Different information should be given where a dynamic hedging process is used. A
dynamic process may be used in which both the exposure and the hedging instruments
used to manage that exposure remain the same for only short periods of time because
both the hedging instrument and the hedged item frequently change and the hedging
relationship is frequently reset (or discontinued and restarted). This might occur, for
example, when hedging the interest rate risk of an open portfolio of debt instruments.
In these situations, the following should be disclosed: [IFRS 7.23C]
• information about what the ultimate risk management strategy is in relation to
those hedging relationships;
• a description of how the risk management strategy is reflected by using hedge
accounting and designating those particular hedging relationships; and
• an indication of how frequently the hedging relationships are discontinued and
restarted as part of the process in relation to those hedging relationships.
When the volume of hedging relationships in a dynamic process is unrepresentative of
normal volumes during the period (i.e. the volume at the reporting date does not reflect
the volumes during the period) that fact should be disclosed along with the reason
volumes are believed to be unrepresentative. [IFRS 7.24D].
For all hedges, a description of the sources of hedge ineffectiveness that are expected to
affect the hedging relationship during its term should be disclosed by risk category. [IFRS 7.23D].
If other sources of hedge ineffectiveness
emerge in a hedging relationship, those sources
should be disclosed by risk category along with an explanation of the resulting hedge
ineffectiveness. [IFRS 7.23E].
For cash flow hedges, a description of any forecast transaction for which hedge
accounting had been used in the previous period, but which is no longer expected to
occur, should be disclosed. [IFRS 7.23F].
Financial
instruments:
Presentation and disclosure 4179
4.3.3
The effects of hedge accounting on financial position and
performance
The following amounts related to designated hedging instruments should be disclosed:
• the carrying amount of the hedging instruments, presenting financial assets
separately from financial liabilities;
• the line item in the statement of financial position that includes the hedging instrument;
• the change in fair value of the hedging instrument used as the basis for recognising
hedge ineffectiveness for the period; and
• the nominal amounts (including quantities such as tonnes or cubic metres) of the
hedging instruments.
This information should be given in a tabular format, separately by risk category and for
fair value hedges, cash flow hedges and hedges of a net investment in a foreign
operation, [IFRS 7.24A], and the implementation guidance suggests it might be given in the
following format. [IFRS 7.IG13C].
Example 50.1: Amounts related to hedged instruments
Nominal
Carrying amount of the
Line item in the
Changes in fair
amount of the
hedging instrument
statement of
value used for
hedging
financial
calculating
instrument
position where
hedge
the hedging
ineffective-
instrument is
ness for 20X1
Assets
Liabilities
located
Cash flow hedges
Commodity price risk
– Forward
sales
xx
xx
xx
Line item XX
xx
contracts
Fair value hedges
Interest rate risk
– Interest rate swaps
xx
xx
xx
Line item XX
xx
Foreign exchange risk
– Foreign
currency
xx
xx
xx
Line item XX
xx
loan
The following amounts related to hedged items should be disclosed:
• for fair value hedges:
• the carrying amount of the hedged item recognised in the statement of
financial position, presenting assets separately from liabilities;
• the accumulated amount of adjustments to the hedged item included in its
carrying amount, again presenting assets separately from liabilities;
• the line item in the statement of financial position that includes the hedged item;
• the change in value of the hedged item used as the basis for recognising hedge
ineffectiveness for the period; and
4180 Chapter 50
• the accumulated amount of adjustments to hedged financial instruments
measured at amortised cost that have ceased to be adjusted for hedging gains
and losses and which remain in the statement of financial position;
• for cash flow hedges and hedges of a net investment in a foreign operation:
• the change in value of the hedged item used as the basis for recognising hedge
ineffectiveness for the period;
• the balances in the cash flow hedge reserve and the foreign currency
translation reserve for continuing hedges; and
• the balances remaining in the cash flow hedge reserve and the foreign
currency translation reserve from any hedging relationships for which hedge
accounting is no longer applied.
This information should be given in a tabular format, separately by risk category,
[IFRS 7.24B], and the implementation guidance suggests it might be given in the following
format. [IFRS 7.IG13D].
Example 50.2: Amounts related to hedged items
Carrying amount of
Accumulated amount Line item in the Change in
Cash
the hedged item
of fair value hedge
statement of
value used
flow
adjustments on the
financial
for
hedge
hedged item included
position in
calculating
reserve
in the carrying
which the
hedge
amount of the hedged hedged item is ineffective-
item
included
ness for
20X1
Assets
Liabilities
Assets
Liabilities
Cash flow hedges
Commodity price risk
– Forecast sales
n/a n/a
n/a
n/a
n/a
xx xx
– Discontinued
n/a n/a
n/a
n/a
n/a
n/a xx
hedges (forecast
sales)
Fair value hedges
Interest rate risk
– Loan payable
–
xx
–
xx
Line item XX
xx
n/a
– Discontinued
– xx
–
xx
Line item XX
n/a n/a
hedges
(Loan payable)
Foreign exchange risk
– Firm
xx
xx
xx
xx
Line item XX
xx
n/a
commitment
The following amounts affecting the statement of comprehensive income should
be disclosed:
• for fair value hedges:
• hedge ineffectiveness, i.e. the difference between the hedging gains or losses
of the hedging instrument and the hedged item, recognised in profit or loss
(or other comprehensive income for hedges of an equity instrument for which
changes in fair value are presented in other comprehensive income); and
Financial
instruments:
Presentation and disclosure 4181
• the line item in the statement of comprehensive income that includes the
recognised hedge ineffectiveness;
• for cash flow hedges and hedges of a net investment in a foreign operation:
• hedging gains or losses that were recognised in other comprehensive income
in the reporting period;
• hedge ineffectiveness recognised in profit or loss;
• the line item in the statement of comprehensive income that includes the
recognised hedge ineffectiveness;
• the amount reclassified from the cash flow hedge reserve or the foreign
currency translation reserve into profit or loss as a reclassification adjustment,
differentiating in the case of cash flow hedges between:
• amounts for which hedge accounting had previously been used, but for
which the hedged future cash flows are no longer expected to occur; and
• amounts that have been transferred because the hedged item has affected
profit or loss;
• the line item in the statement of comprehensive income that includes the
reclassification adjustment; and
• for hedges of net positions, the hedging gains or losses recognised in a
separate line item in the statement of comprehensive income.
This information should be given in a tabular format, separately by risk category,
[IFRS 7.24C], and the implementation guidance suggests it might be given in the following
format. [IFRS 7.IG13E].
Example 50.3: Amounts affecting the statement of comprehensive income.
Cash flow hedges
Separate
Change in the
Hedge
Line item in
Amount
Line item
(a)
line item
value of the
ineffective- profit or loss (that reclassified
affected in
recognised in
hedging
ness
includes hedge from the cash
profit or loss
profit or loss
instrument
recognised ineffectiveness)
flow hedge
because of the
as a result
recognised in
in profit or
reserve to
reclassification
of a hedge
other
loss
profit or loss
of a net
comprehensive
position (b)
income
Commodity
price risk
Line item
Commodity X
n/a
xx
xx
Line item XX
xx
XX
– Discontinued
Line item
hedge n/a n/a
n/a
n/a
xx
XX
(a)
The information disclosed in the statement of changes in equity (cash flow hedge reserve) should
have the same level of detail as these disclosures.
(b)
This disclosure only applies to cash flow hedges of foreign currency risk.
Fair value Hedges
Ineffectiveness recognised in
Line item(s) in profit or loss
profit or loss
(that include(s) hedge
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 828
