ANNEX
INTERNATIONAL ACCOUNTING STANDARDS
IAS 39 | Eligible Hedged Items Amendment to IAS 39 Financial Instruments: Recognition and Measurement |
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Eligible Hedged Items (Amendment to IAS 39 Financial Instruments: Recognition and Measurement)
In the Standard, paragraph 103G is added.
EFFECTIVE DATE AND TRANSITION
103G | An entity shall apply paragraphs AG99BA, AG99E, AG99F, AG110A and AG110B retrospectively for annual periods beginning on or after 1 July 2009, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies Eligible Hedged Items (Amendment to IAS 39) for periods beginning before 1 July 2009, it shall disclose that fact. |
In Appendix A Application guidance, paragraphs AG99BA, AG99E, AG99F, AG110A and AG110B are added.
Hedged items (paragraphs 78–84)
Qualifying items (paragraphs 78–80)
AG99BA | An entity can designate all changes in the cash flows or fair value of a hedged item in a hedging relationship. An entity can also designate only changes in the cash flows or fair value of a hedged item above or below a specified price or other variable (a one-sided risk). The intrinsic value of a purchased option hedging instrument (assuming that it has the same principal terms as the designated risk), but not its time value, reflects a one-sided risk in a hedged item. For example, an entity can designate the variability of future cash flow outcomes resulting from a price increase of a forecast commodity purchase. In such a situation, only cash flow losses that result from an increase in the price above the specified level are designated. The hedged risk does not include the time value of a purchased option because the time value is not a component of the forecast transaction that affects profit or loss (paragraph 86(b)). |
Designation of financial items as hedged items (paragraphs 81 and 81A)
AG99E | Paragraph 81 permits an entity to designate something other than the entire fair value change or cash flow variability of a financial instrument. For example: all of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to some (but not all) risks; or some (but not all) of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to all or only some risks (ie a ‘portion’ of the cash flows of the financial instrument may be designated for changes attributable to all or only some risks). |
AG99F | To be eligible for hedge accounting, the designated risks and portions must be separately identifiable components of the financial instrument, and changes in the cash flows or fair value of the entire financial instrument arising from changes in the designated risks and portions must be reliably measurable. For example: for a fixed rate financial instrument hedged for changes in fair value attributable to changes in a risk-free or benchmark interest rate, the risk-free or benchmark rate is normally regarded as both a separately identifiable component of the financial instrument and reliably measurable; inflation is not separately identifiable and reliably measurable and cannot be designated as a risk or a portion of a financial instrument unless the requirements in (c) are met; a contractually specified inflation portion of the cash flows of a recognised inflation-linked bond (assuming there is no requirement to account for an embedded derivative separately) is separately identifiable and reliably measurable as long as other cash flows of the instrument are not affected by the inflation portion. |
Hedge accounting (paragraphs 85–102)
Assessing hedge effectiveness
AG110A | Paragraph 74(a) permits an entity to separate the intrinsic value and time value of an option contract and designate as the hedging instrument only the change in the intrinsic value of the option contract. Such a designation may result in a hedging relationship that is perfectly effective in achieving offsetting changes in cash flows attributable to a hedged one-sided risk of a forecast transaction, if the principal terms of the forecast transaction and hedging instrument are the same. |
AG110B | If an entity designates a purchased option in its entirety as the hedging instrument of a one-sided risk arising from a forecast transaction, the hedging relationship will not be perfectly effective. This is because the premium paid for the option includes time value and, as stated in paragraph AG99BA, a designated one-sided risk does not include the time value of an option. Therefore, in this situation, there will be no offset between the cash flows relating to the time value of the option premium paid and the designated hedged risk. |