Hedge Accounting Consultation

Hedge policy

Hedge policy is complimentary to the risk management policy and this is a key document that mentions the hedge ratio etc which are very key elements for implementing hedge accounting

Hedge Accounting Policy

The hedge accounting policy should dovetail into the risk management policy of the entity. A hedging relationship can continue only so long as it matches with the risk management objectives Hedge documentation. A key requirement for hedge accounting, this document contains the details of the hedged item and the hedging instrument. It also specifies several key elements that are imperative for hedge accounting.

Hedge effectiveness testing

The hedging relationship should be tested prospectively to ensure that the hedge is effective. The bright line test is dispensed with, but it should be proved that the hedged and the hedging instruments move in opposite directions

Accounting entries

All Accounting entries are generated on every valuation date clearly mentioning the profit and loss account impact and the impact on Other Comprehensive Income based on the effectiveness and other factors.

Year-end disclosures

Disclosures provided as per the requirements of the Accounting Standard. The disclosure requirements are significantly quite complex for hedge accounting and requires an exhaustive study of several aspects of the hedging relationship over the entire life.

Fair value hedge

In a Fair value hedge the fair value of an asset or liability that is attributable to a particular risk and could affect the profit or loss is covered. The fair value of both the hedged and hedging instrument should be measured properly

Cash flow hedge

A cash flow hedge is a hedge of the exposure to variability in cash flows attributable to a particular risk associated with a recognised asset or liability that ultimately affects the profit and loss account.