IFRS Covid-19 Hedge Accounting Insights

COVID-19: Hedge accounting insights

There are several accounting considerations the COVID-19 pandemic has triggered  in relation to IFRS 9. In our view one of the most significant is in relation to hedge  accounting and highly probable cash flows.

Under IFRS, if an entity is applying hedge accounting as part  of its risk management strategy, it will follow the hedging  requirements in IFRS 9 ‘Financial Instruments’. However it  could still be applying the requirements in IAS 39 ‘Financial  Instruments: Recognition and Measurement’ in certain  circumstances. In both cases, a key criterion relating to cash flow hedges over forecast transactions relates to the  requirement for the hedged cash flows to be highly probable.  This is set out in IFRS 9.6.3.3.

During the COVID-19 pandemic, an entity therefore may  need to consider:

  • if the hedged cash flows still meet the highly probable assessment (if not, the hedging relationship will have to be  discontinued, in its entirety or only in part in accordance  with IFRS 9.6.5.6)
  • if the cash flow hedge reserve includes amounts that should be moved to profit or loss upon discontinuation of the hedge
  • if there is any hedge ineffectiveness to recognise in the profit or loss for hedges that continue to meet the qualifying  criteria to apply hedge accounting.

Preparers of financial statements will need to be agile and responsive as the situation unfolds. Having access to  experts, insights and accurate information as quickly as  possible is critical – but your resources may be stretched  at this time. We can support you as you navigate through accounting for the impacts of COVID-19 on your business.

Now more than ever the need for businesses, their auditor and any other accounting advisors to work closely  together is essential. If you would like to discuss any of the points raised, please speak to your usual Grant Thornton adviser or download our capability brochure.

Shahnawaz Khan

Partner

T +973 35640273
E shahnawaz.khan@bh.gt.com

Chris Noguera

Partner

T +973 36549696
E chris.noguera@bh.gt.com

 

Disclaimer:

This article is solely to provide useful information to the readers. Views expressed are personal and they do not necessarily reflect the views of the Company and further, the views are not binding on any person. The author and publisher are not offering it as legal, accounting, or other professional service advice.