Al-Azhar University Of Gaza<br />Faculty Of Economic & Administrative Sciences<br />Accounting Department<br />Financial I...
Contents<br />1<br />3<br />5<br />2<br />4<br />IFRS 9 Hedge Accounting<br />Accounting for Qualifying Hedges<br />Hedges...
Part 1: IFRS 9 Hedge Accounting;Introduction and Overview<br />
Hedge Accounting<br />Hedge accounting is a mechanism that allows entities to reflect the results of some risk management ...
Hedging instruments<br />A financial asset or a financial liability measured at fair value through profit or loss maybe de...
Hedged items<br />A hedged item can be a recognized asset or liability, an unrecognized firm commitment, a highly probable...
Hedged Effectiveness<br />A Hedge Effectiveness is the extent to which changes in the fair value or cash flows of the hedg...
Qualifying Criteria for Hedge Accounting<br />A- The hedging relationship consists only of eligible hedging instruments an...
Qualifying Criteria for Hedge Accounting<br />C- The hedging relationship meets the hedge effectiveness requirements.<br /...
Part 2 :Accounting for Qualifying Hedges<br />
Accounting For Qualifying Hedges<br />There are three types of hedging relationships:<br />Fair value hedges.<br />Cash fl...
Fair value hedges<br />A hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecogni...
Fair value hedges<br /><ul><li> An example of a fair value hedgeis a hedge of exposure to changes in the fair value of a f...
 A hedge of a firm commitment is a hedge of an exposure to a change in fair value.</li></li></ul><li>Fair value hedges<br ...
Fair value hedges<br />The ineffective portion of the gain or loss from remeasuring the hedging instrument and the hedged ...
Cash flow hedges<br />A hedge of the exposure to variability in cash flows that is attributable to a particular risk assoc...
Cash flow hedges<br />An example of a cash flow hedge is the use of a swap to change floating rate debt to fixed rate debt...
Cash flow hedges<br />It shall be accounted for as follows:<br />The separate component of equity associated with the hedg...
Cash flow hedges<br />The portion of the gain or loss on the hedging instrument that is determined to be an effective hedg...
Cash flow hedges<br />When an entity discontinues hedge accounting for a cash flow hedge it shall account for the amount t...
Hedges of a net investment in a foreign operation<br />Hedges of a net investment in a foreign operation: is the amount of...
Rebalancing the hedging relationship and changes to the hedge ratio<br />
Part 3: Hedges of a Group of Items<br />
Hedges of a Group of Items<br />Eligibility of a group of items as the hedged item:<br />It consists of items that individ...
Hedges of a Group of Items<br />For the purpose of cash flow hedge accounting only, any offsetting cash flows in the group...
Hedges of a Group of Items<br />Presentation:<br />For a hedge of a group of items with offsetting hedged risk positions t...
Part 4: Disclosures<br />
Disclosure<br />Hedge accounting disclosures shall provide information about:<br />An entity’s risk management strategy an...
Part 5: Conclusion<br />
Key differences between IAS 39 and IFRS 9<br />Risk Management<br />IAS 39<br />Not necessarily linked to the objectives o...
Key differences between IAS 39 and IFRS 9<br />Hedged Item<br />IAS 39<br />Items can only be hedged in their entirety<br ...
Key differences between IAS 39 and IFRS 9<br />Effectiveness <br />Assessment<br />IAS 39<br />Changes to hedge relationsh...
Key differences between IAS 39 and IFRS 9<br />Fair Value<br />Hedge<br />IAS 39<br />Hedged item being adjusted to reflec...
Why is it better to shift to the use of IFRS 9??<br />Improved ability to align accounting with the company’s business mod...
Feel Free to Ask!<br />
Thank You !<br />
Upcoming SlideShare
Loading in …5
×

Financial Instruments;, Hedging Accounting

9,530 views

Published on

graduation research about Financial Instruments; Hedging Accounting

Published in: Business, Economy & Finance

Financial Instruments;, Hedging Accounting

  1. 1. Al-Azhar University Of Gaza<br />Faculty Of Economic & Administrative Sciences<br />Accounting Department<br />Financial Instruments;Hedging Accounting<br />Prepared by:<br />Amjad Issa Taha<br />Omar Jamal AbuShaaban<br />Shady Emad Al-Dalou<br />Supervised by:<br />Dr. EmadAbuShaaban<br />May, 2011<br />
  2. 2. Contents<br />1<br />3<br />5<br />2<br />4<br />IFRS 9 Hedge Accounting<br />Accounting for Qualifying Hedges<br />Hedges of a Group of Items<br />Disclosures<br />Conclusion<br />
  3. 3. Part 1: IFRS 9 Hedge Accounting;Introduction and Overview<br />
  4. 4. Hedge Accounting<br />Hedge accounting is a mechanism that allows entities to reflect the results of some risk management activities in the financial statements.<br />This is achieved by changing the timing of the recognition of gains and losses to enable the link between a hedged risk and the instrument providing the hedge to be reflected.<br />
  5. 5. Hedging instruments<br />A financial asset or a financial liability measured at fair value through profit or loss maybe designated asa hedging instrument.<br />For hedge accounting purposes, only contracts with a party external to the reporting entity can be designated as hedging instruments.<br />
  6. 6. Hedged items<br />A hedged item can be a recognized asset or liability, an unrecognized firm commitment, a highly probable forecast transaction or a net investment in a foreign operation. <br />A hedged item must be reliably measurable. <br />
  7. 7. Hedged Effectiveness<br />A Hedge Effectiveness is the extent to which changes in the fair value or cash flows of the hedging instrument offset changes in the fair value or cash flows of the hedged item. <br />Under IAS 39;<br />A highly effective hedge would offset at least 80% of the change & no more than 125%.<br />
  8. 8. Qualifying Criteria for Hedge Accounting<br />A- The hedging relationship consists only of eligible hedging instruments and hedged items.<br /> <br />B- 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.<br />
  9. 9. Qualifying Criteria for Hedge Accounting<br />C- The hedging relationship meets the hedge effectiveness requirements.<br />A hedging relationship meets the hedge effectiveness requirements if it:<br /> <br />Meets the objective of the hedge effectiveness assessment; and<br />Is expected to achieve other than accidental offsetting.<br />
  10. 10. Part 2 :Accounting for Qualifying Hedges<br />
  11. 11. Accounting For Qualifying Hedges<br />There are three types of hedging relationships:<br />Fair value hedges.<br />Cash flow hedges.<br />Hedges of a net investment in a foreign operation.<br />
  12. 12. Fair value hedges<br />A hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or loss.<br />
  13. 13. Fair value hedges<br /><ul><li> An example of a fair value hedgeis a hedge of exposure to changes in the fair value of a fixed rate debt instrument arising from changes in interest rates.
  14. 14. A hedge of a firm commitment is a hedge of an exposure to a change in fair value.</li></li></ul><li>Fair value hedges<br />Under fair value hedge, the hedge relationship shall be accounted for as follows:<br />The gain or loss from remeasuring the hedging instrument shall be recognized in other comprehensive income.<br />The hedging gain or loss on the hedged item shall be recognized and presented as a separate line item in the statement of financial position, and be recognized in other comprehensive income.<br />
  15. 15. Fair value hedges<br />The ineffective portion of the gain or loss from remeasuring the hedging instrument and the hedged item shall be transferred from other comprehensive income to profit or loss.<br />
  16. 16. Cash flow hedges<br />A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.<br />
  17. 17. Cash flow hedges<br />An example of a cash flow hedge is the use of a swap to change floating rate debt to fixed rate debt (i.e. a hedge of a future transaction in which the future cash flows being hedged are the future interest payments).<br />
  18. 18. Cash flow hedges<br />It shall be accounted for as follows:<br />The separate component of equity associated with the hedged item (cash flow hedge reserve) is adjusted to the lower of the following:<br />The cumulative gain or loss on the hedging instrument from inception of the hedge.<br />The cumulative change in fair value of the hedged item from inception of the hedge.<br />
  19. 19. Cash flow hedges<br />The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge shall be recognized in other comprehensive income.<br />Any remaining gain or loss (i.e. hedge ineffectiveness) is recognized in profit or loss.<br />
  20. 20. Cash flow hedges<br />When an entity discontinues hedge accounting for a cash flow hedge it shall account for the amount that has been accumulated in the cash flow hedge reserve, as follows:<br />If the hedged future cash flows are still expected to occur, that amount shall remain in the cash flow hedge reserve until the future cash flows occur.<br />If the hedged future cash flows are no longer expected to occur, that amount shall be reclassified from the cash flow hedge reserve to profit or loss. <br />
  21. 21. Hedges of a net investment in a foreign operation<br />Hedges of a net investment in a foreign operation: is the amount of reporting an entity interest in the net assets of that operation.<br />Including a hedge of a monetary item that is accounted for as part of the net investment, shall be accounted for similarly to cash flow hedges.<br />
  22. 22. Rebalancing the hedging relationship and changes to the hedge ratio<br />
  23. 23. Part 3: Hedges of a Group of Items<br />
  24. 24. Hedges of a Group of Items<br />Eligibility of a group of items as the hedged item:<br />It consists of items that individually are eligible hedged items.<br />The items in the group are managed together on a group basis for risk management purposes.<br />
  25. 25. Hedges of a Group of Items<br />For the purpose of cash flow hedge accounting only, any offsetting cash flows in the group of hedged items, exposed to the hedged risk, affect profit or loss in the same and only in that reporting period.<br />
  26. 26. Hedges of a Group of Items<br />Presentation:<br />For a hedge of a group of items with offsetting hedged risk positions that affect different line items in the income statement; any hedging instrument gains or losses recognized in profit or loss shall be presented in a separate line from those affected by the hedged items.<br />For assets and liabilities that are hedged together as a group in a fair value hedge, the gain or loss on the assets and liabilities shall be recognized in the statement of financial position.<br />
  27. 27. Part 4: Disclosures<br />
  28. 28. Disclosure<br />Hedge accounting disclosures shall provide information about:<br />An entity’s risk management strategy and how it is applied to manage risk;<br />How the entity’s hedging activities may affect the amount, timing and uncertainty of its future cash flows; and<br />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.<br />
  29. 29. Part 5: Conclusion<br />
  30. 30. Key differences between IAS 39 and IFRS 9<br />Risk Management<br />IAS 39<br />Not necessarily linked to the objectives of hedge accounting<br />IFRS 9<br />is more closely to the objectives of the hedge accounting.<br />
  31. 31. Key differences between IAS 39 and IFRS 9<br />Hedged Item<br />IAS 39<br />Items can only be hedged in their entirety<br />IFRS 9<br />Risk components can be eligible hedged item<br />
  32. 32. Key differences between IAS 39 and IFRS 9<br />Effectiveness <br />Assessment<br />IAS 39<br />Changes to hedge relationship would result in mandatory <br />de-designation <br />IFRS 9<br />Changes to hedge relationship may result in rebalancing of the hedge ratio<br />
  33. 33. Key differences between IAS 39 and IFRS 9<br />Fair Value<br />Hedge<br />IAS 39<br />Hedged item being adjusted to reflect the offset achieved by the hedge relationship<br />IFRS 9<br />Effect of hedge accounting will be reflected as a separate balance sheet line item<br />
  34. 34. Why is it better to shift to the use of IFRS 9??<br />Improved ability to align accounting with the company’s business model for managing financial assets. <br />Help companies better reflect their hedging activities on their financial statements .<br />Reduce complexity. <br />
  35. 35. Feel Free to Ask!<br />
  36. 36. Thank You !<br />

×