Part 5: The Impact of Adopting IFRS 9 on Effectiveness Testing, Ineffectiveness Measurement, and Rebalancing

February 2015

In case you missed them here are: Part 1, Part 2, Part 3 and Part 4 Some of the most challenging elements of maintaining a hedging relationship under IAS 39 include complying with the periodic effectiveness testing requirements and properly measuring hedge ineffectiveness. Performing effectiveness testing often requires the use of complex quantitative analysis like statistical regression. Calculating the fair values of the derivatives and hedged items to be used in both the effectiveness testing and the measurement of hedge ineffectiveness often requires the use of sophisticated valuation models. Determining the appropriate methodology to value derivatives and the related hedged items represents another complex area for companies to navigate. The IASB attempted to simplify much of this with changes made to effectiveness testing in IFRS 9, but time will tell if those changes have their intended impact. This fifth bulletin will address:

  • • What Are the Effectiveness Testing and Ineffectiveness Measurement Requirements in IAS 39?
  • • How is Effectiveness Testing Different Under IFRS 9?
  • • Ineffectiveness Measurement
  • • Rebalancing

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