CA Final · Financial Reporting · Hedge Accounting
Anand Pharma Ltd has a cash flow hedge of forecast US dollar sales using forwards. At inception it documented that ineffectiveness would arise from differences in critical terms. During the year, a new source of ineffectiveness emerged because of a change in the counterparty's credit standing, which was not identified at inception. Assessing the Ind AS 107 disclosure obligations, which statement is correct?
Anand must disclose by risk category the sources of ineffectiveness expected during the hedge's term, and also disclose any other sources that emerge, such as the counterparty credit change, and explain the resulting ineffectiveness. Disclosure is not limited to inception sources or to discontinuation cases.
- AOnly the sources expected at inception need to be described; new sources need not be disclosed
- BThe entity must disclose by risk category a description of expected sources of ineffectiveness during the term of the hedge, and must also disclose any other sources that emerge and explain the resulting ineffectivenessCorrect
- CThe entity need only disclose the new source if it results in discontinuing hedge accounting
- DThe entity must disclose the new source but need not explain the resulting ineffectiveness
Explanation
Para 23D requires a description by risk category of the sources of ineffectiveness expected to affect the hedging relationship during its term. Para 23E requires that if other sources emerge, the entity discloses them by risk category and explains the resulting ineffectiveness. So both the new source and the explanation are required, regardless of discontinuation.
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