Accounting for Derivatives. Ramirez Juan
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Название: Accounting for Derivatives
Автор: Ramirez Juan
Издательство: Автор
Жанр: Зарубежная образовательная литература
isbn: 9781118817964
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Discontinuance of Hedge Accounting
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 of OCI as follows:
• If the hedged future cash flows are still expected to occur, that amount remains in the cash flow hedge reserve until the future cash flows occur or, as mentioned above, until the amount accumulated in the cash flow hedge reserve of OCI is a loss that will not be recovered in one or more future periods.
• If the hedged future cash flows are no longer expected to occur, that amount is immediately reclassified from the cash flow hedge reserve to profit or loss as a reclassification adjustment. A hedged future cash flow that is no longer highly probable to occur may still be expected to occur.
A net investment hedge, or hedge of a net investment in a foreign operation, is a hedge of the foreign currency exposure arising from the reporting entity's interest in the net assets of a foreign operation. The hedging instrument may be either a derivative or a non-derivative financial instrument (e.g., a borrowing denominated in the same currency as the net investment). Figure 2.4 highlights the accounting treatment of net investment hedges.
• The effective portion of the gain or loss on the hedging instrument is recognised in the “foreign currency translation reserve” of OCI. As the exchange difference arising on the net investment is also recognised in OCI, the objective is to match both exchange rate differences.
• The ineffective portion of the gain or loss on the hedging instrument is recognised immediately in profit or loss.
• On disposal (or partial disposal) or liquidation of the foreign operation, the cumulative balance in the foreign currency translation reserve of OCI related to its hedge and its related net investment exchange differences are simultaneously transferred from OCI to profit or loss.
Figure 2.4 Accounting for net investment hedges.
2.3 HEDGED ITEM CANDIDATES
In a hedging relationship there are two elements: the hedged item and the hedging instrument. The hedged item is the element that is designated as being hedged. The fundamental principle is that the hedged item creates an exposure to risk that could affect profit or loss (or OCI in the case of equity instruments investments at FVOCI).
The following can be designated as hedged items:
• A recognised asset or liability (or a component thereof).
• An unrecognised firm commitment (or a component thereof). A firm commitment is a legally binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
• A highly probable forecast transaction (or a component thereof). A forecast transaction is an anticipated transaction that is not yet legally committed.
• A net investment in a foreign operation (on a consolidated basis only).
• A group of the above items.
• An aggregated exposure that is a combination of an exposure that could qualify as a hedged item and a derivative, if the aggregated exposure creates a different aggregated exposure that is managed as one exposure for a particular risk (or risks). For example, a utility with the EUR as functional currency may designate as hedged item the combination of highly probable crude oil purchases and USD-denominated crude oil futures (i.e., a string of fixed amounts of EUR–USD FX risk). The items that constitute the aggregated exposure remain accounted for separately.
• The FX risk component of an intragroup monetary item (e.g., a payable/receivable between two subsidiaries) in the consolidated financial statements if it results in an exposure to FX rate gains or losses that are not fully eliminated on consolidation in accordance with IAS 21 (i.e., when the intragroup monetary item is transacted between two group entities that have different functional currencies).
• The FX risk component of a highly probable forecast intragroup transaction in the 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. For this purpose an entity can be a parent, subsidiary, associate, joint arrangement or branch. The relevant period or periods during which the FX risk of the hedged transaction affects profit or loss is when it affects consolidated profit or loss.
An entity may hedge the foreign currency risk for the entire term of a 10-year fixed rate debt denominated in GBP. However, the entity requires fixed rate exposure in its functional currency (the EUR) only for 2 years and floating rate exposure in EUR for the remaining term to maturity. At the end of each of the 2-year intervals (i.e., on a 2-year rolling basis) the entity fixes the next 2 years' interest rate exposure (if the interest level is such that the entity wants to fix interest rates). In such a situation an entity may enter into a 10-year GBP fixed-to-EUR floating cross-currency interest rate swap that swaps the fixed rate GBP debt into a variable rate EUR exposure. This is overlaid with a EUR 2-year interest rate swap that swaps EUR variable rate debt into EUR fixed rate debt. In effect, the fixed rate GBP debt and the 10-year fixed-to-floating cross-currency interest rate swap in combination can be designated as a hedged item, viewed as a EUR 10-year variable rate debt exposure for risk management purposes.
The way in which a derivative is included as part of an aggregated exposure must be consistent with the designation of that derivative as the hedging instrument at the level of the aggregated exposure. For example, if an entity excludes the forward element of a derivative from its designation as the hedging instrument for the hedging relationship between the items that constitute the aggregated exposure, it must also exclude the forward element when including that derivative as a hedged item as part of the aggregated exposure. Otherwise, the aggregated exposure shall include a derivative, either in its entirety or a proportion of it.
An example of this sort of transactions is a forecast sale or purchase of inventory between members of the same group (including parent, subsidiary, associate, joint venture or branch) if there is an onward sale of inventory to party external to the group.
Another example is a forecast intragroup sale of equipment from the group entity that manufactured it to a group entity that will use the equipment in its operations (it affects profit or loss because the equipment will be depreciated by the purchasing entity, and the amount initially recognised may change if it is denominated in a currency other than the functional currency of the purchasing entity).
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.
Components of an Item Eligible for Designation as a Hedged Item
An entity may designate an eligible item (or group of eligible items) in its entirety as the hedged item in a hedging relationship. An entire item comprises all changes in the cash flows or fair value of an item.
A proportion of an eligible item (or group of eligible items) СКАЧАТЬ