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CA Final · Financial Reporting · Hedge Accounting

Bharat Steel Ltd has a cash flow hedge of forecast dollar purchases. At inception it expects ineffectiveness to arise only from differences in the timing of the forward contract and the purchases. During the year, a counterparty credit deterioration produced additional ineffectiveness not anticipated earlier. Which disclosure treatment is correct under Ind AS 107?

The entity discloses by risk category the sources of ineffectiveness expected during the hedge's term, here the timing difference, and also discloses the newly emerged counterparty credit source by risk category, explaining the resulting ineffectiveness. Omitting unexpected sources or aggregating across risk categories does not comply with Ind AS 107.

  1. ADisclose by risk category the expected sources of ineffectiveness during the term of the relationship, and separately disclose the newly emerged source and explain the resulting ineffectivenessCorrect
  2. BDisclose only the timing difference, because sources not expected at inception need not be disclosed
  3. CDisclose the credit-related ineffectiveness only if the hedge relationship is discontinued
  4. DDisclose the new source in aggregate for all risk categories without explaining the resulting ineffectiveness

Explanation

Para 23D requires disclosure by risk category of the sources of hedge ineffectiveness expected to affect the relationship during its term. Para 23E requires that if other sources emerge, the entity discloses them by risk category and explains the resulting ineffectiveness. Limiting disclosure to expected sources, or aggregating across risks, contradicts these requirements.

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