Hedge Accounting

Bernhard Wondrak

The hedge accounting principles are special accounting rules that were incorporated into International Accounting Standard 39 (IAS 39) to eliminate valuation asymmetries resulting from the specific valuation principles in the four categories of financial instruments in the original standard. Hedge accounting is applicable for hedges of financial instruments in the IAS 39 categories “loans and receivables”, “held to maturity” and “available for sale” with derivative instruments as hedging instruments. Although hedge accounting was introduced to consider risk management effects in financial accounting, it was characterised by many administrative obligations and limitations that restricted the use of the hedge accounting rules in banks.

In 2009 a project was set up to replace the IAS 39 by International Financial Reporting Standard 9 (IFRS 9). Hedge accounting rules in IFRS 9 were the third part of the replacement of IAS 39 after classification and measurement and the replacement of the impairment rules by expected credit loss. The final version of the hedge accounting rules for IFRS 9 was published on July 24, 2014, and endorsed by the European Union on November 29, 2016 (European

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