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ACCA Strategic Professional · Strategic Business Reporting (International) · Financial instruments

Under IFRS 9, which of the following is a requirement for a hedging relationship to qualify for hedge accounting?

IFRS 9 requires an economic relationship between hedged item and hedging instrument, credit risk not dominating, and a hedge ratio matching the quantities actually used. The old IAS 39 80-125% test has been removed, and documentation is required at inception rather than later.

  1. AThe hedge must be expected to achieve an effectiveness ratio of between 80% and 125%
  2. BThe hedge ratio must reflect the actual quantities of hedged item and hedging instrument used, and there must be an economic relationship between themCorrect
  3. CThe hedging relationship must be documented only after the first reporting date on which it is used
  4. DThe hedging instrument must be a derivative designated for the whole of its remaining life

Explanation

IFRS 9 requires formal designation and documentation at inception, an economic relationship, credit risk not dominating value changes, and a hedge ratio reflecting actual quantities used. The 80-125% bright line was in IAS 39 and was removed. Documentation is needed at inception, and a proportion of an instrument may be designated.

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