Hedge accounting be applied only prospectively
Why should hedge accounting be applied only prospectively and not retrospectively?
To implement hedge accounting, there should be a complete set of documentation available that fully describes a hedging relationship including designation of hedged item, hedging instrument and several other requirements. On first-time adoption, the entity should ensure that proper hedging document is in place before applying hedge accounting. Hedge accounting cannot be retrospectively applied whatsoever. This is because if it is permitted, then it would amount to allowing an entity to take advantage of hedge accounting provided its beneficial or otherwise not to implement the same. In other words, an entity cannot decide to implement hedge accounting after knowing the results of such implementation. Hence, hedge accounting is required to be implemented only prospectively.
