Introduction to Hedge Accounting

Hedge accounting requires the hedged item and hedging instrument to be identified and designated at the inception of the hedge. The hedged item can be an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation, or a group of any such items.

Most derivative financial instruments may be designated as hedging instruments, provided they are with an external party. The fully integrated architecture for IFRS solution includes Hedge Accounting and is as follows:

• Hedge accounting is optional under IFRS 9 and is supported by the International Hedge Accounting (IH) module.
• Specifies the hedge types (fair value, cash flow or investments).
• Documents the hedge relationship.
• Defines accounting rules based on the hedge types.
• Framework for generating hedge accounting entries.