CA Final · Financial Reporting · Hedge Accounting

Bharat Polymers Ltd hedges interest rate risk on its floating rate loan using swaps and also hedges commodity price risk on naphtha purchases using futures, applying hedge accounting to both. While preparing the Ind AS 107 hedge accounting disclosures, the finance team proposes to classify risk categories by instrument type (swaps, futures) and to change the grouping basis each year to suit presentation. Which approach is consistent with Ind AS 107?

Risk categories must be based on the risk exposures the entity hedges and applies hedge accounting to, such as interest rate and commodity price risk, and must be applied consistently across all hedge accounting disclosures. Grouping by instrument type or changing the basis yearly is not permitted.

1. ARisk categories should be determined on the basis of the risk exposures the entity decides to hedge and for which hedge accounting is applied, and determined consistently for all hedge accounting disclosuresCorrect
2. BRisk categories should be determined by instrument type, and may change each year
3. CRisk categories are determined by the auditor after the year end
4. DRisk categories need not be used if the entity has fewer than three hedging relationships