Macro Hedging Strategies – FAQ | IFRS

Macro hedging strategies

Applying hedge accounting for macro hedging strategies under IFRS 9

Because of its pending project on an accounting model specifically tailored to macro hedging situations (see ‘Accounting for macro hedging‘), the IASB created a scope exception from the IFRS 9 hedging accounting requirements that allows entities to use the specific fair value hedge accounting for portfolio hedges of interest rate risk, as defined in IAS 39, until the project is finalised and becomes effective. However, the implementation guidance accompanying IAS 39 also contains specific illustrations of the implementation of cash flow hedge accounting when financial institutionsmanage interest rate risk on a net basis.

The IASB decided not to carry forward implementation guidance on hedge accounting to IFRS 9. As a result, many financial institutions were concerned that they would not be able to continue with their existing macro cash flow hedging strategies under IFRS 9. The IASB clarified that not carrying forward the implementation guidance was without prejudice (i.e., it did not mean that the IASB had rejected that guidance and so had not intended to imply that entities cannot apply macro cash flow hedge accounting under IFRS 9).

Nonetheless, the IASB also decided to give entities an accounting policy choice until the project on accounting for macro hedging is completed. Entities may:

  • Apply the new hedge accounting requirements as set out in IFRS 9, in full

  • Apply the new hedge accounting requirements as set out in IFRS 9 to all hedges except fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities; in that case an entity must also apply the paragraphs that were added to IAS 39 when that particular type of hedge was introduced (IAS 39.81A, 89A and AG114-AG132) i.e., an entity must apply all the hedge accounting requirements of IAS 39 (e.g., the 80% – 125% bright line effectiveness test) including the paragraphs that specifically address fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities)

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