Voluntary discontinuation of hedge accounting

Voluntary discontinuation of hedge accounting

Can a hedge accounting be voluntarily discontinued and why?

As per the new requirements, hedge accounting cannot be voluntarily discontinued. Hedge accounting can be discontinued only if the hedge effectiveness requirements are not met or that the hedging instrument is liquidated. Even when the hedge effectiveness requirements are not met, the entity should adjust the hedge ratio through the process of rebalancing and continue with hedge accounting so long as the hedging relationship continues to meet the risk management objectives of the enterprise.

When hedge accounting is discontinued, the hedged item would once again be valued at amortised cost. The carrying value of the hedged item would have been reduced or increased, as the case may be, by the value of the hedging instrument. Such carrying value would be amortised based on applying the effective interest rate method such that at maturity the carrying value would be equal to the maturity value of the financial asset or liability.

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