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CA Final · Financial Reporting · Hedge Accounting

Kaveri Auto Ltd designates forward contracts as cash flow hedges of forecast export sales in US dollars. Its management is drafting the note on the sources of hedge ineffectiveness. Which disclosure is required by Ind AS 107?

The entity must disclose, by risk category, a description of the sources of hedge ineffectiveness that are expected to affect the hedging relationship during its term. This is a forward-looking requirement and covers the hedges for which hedge accounting is applied, including cash flow hedges.

  1. AA description, by risk category, of the sources of hedge ineffectiveness expected to affect the hedging relationship during its termCorrect
  2. BA description of hedge ineffectiveness only after it has actually arisen, without any forward-looking description
  3. CA single description for all hedges combined, without separation by risk category
  4. DA description of ineffectiveness sources only for fair value hedges, as cash flow hedges are excluded

Explanation

Ind AS 107 (para 23D) requires disclosure by risk category of a description of the sources of hedge ineffectiveness expected to affect the hedging relationship during its term. It is forward-looking and is not limited to fair value hedges. Emerging sources are separately covered by para 23E.

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