Initial considerations before applying Hedge Accounting under IFRS 9
Companies adopting IFRSs have historically been applying the hedge accounting provisions under IAS 39 – Financial Instruments: Recognition and Measurement which was issued back in 2001. However, many companies felt that IAS 39 was difficult to apply due to some of its onerous provisions. Some of these include restrictions on the types of hedging relationships that can qualify for hedge accounting and the need to perform periodic quantitative effectiveness assessments that evaluate how well the hedge has performed at hedging the designated risk. The IASB heard the criticisms of IAS 39 and drafted a new standard, IFRS 9 published in November 2013, which includes provisions that are aimed at simplifying the application of hedge accounting and bringing it more in line with a company’s risk management activities.