UK businesses unprepared for hedging changes

Medium-sized UK companies are unprepared for forthcoming rule changes on accounting standards that require more rigorous reporting of foreign exchange exposure, according to FX specialist HiFX.

Only one in three small and medium-sized enterprises is aware of changes that are required by the new standards, according to the research. The new generally accepted accounting principles (GAAP) rules, which comply with International Financial Reporting Standards (IFRS), will be adopted from January 1 2007. All UK companies will have to adopt them by 2009.

Under the new regime, companies will have to factor in accounting risks as well as economic risks. This means businesses will have to show fair value for all derivatives, including FX forwards contracts, on their balance sheets, and report changes in fair value through the price and loss, unless hedge accounting is adopted.

However, 66% of businesses polled were completely unaware of how the accounting rules would affect their balance sheet valuations.