Presentation - Fair Value Hedges – FAQ | IFRS

Presentation – Fair value hedges

A fair value hedge is used when an entity is looking to eliminate or reduce the exposure that arises from changes in the fair value of a financial asset or liability (or other eligible exposure) due to changes in a particular risk, such as interest rate risk on a fixed rate debt instrument. The hedged item is permitted to be measured at fair value each period in respect of the hedged risk (not for all risks), even if the hedged item is normally measured at amortized cost. Any resulting adjustment to the carrying amount of the hedged item related to the hedged risk is recognized in profit or loss, even if such a change normally would be recognized in Other Comprehensive Income (OCI) – for example in the case of an instrument classified as available for sale.

Presentation – Fair value hedges

IFRS 9 does not change how fair value hedges are presented. Entities would continue to recognise the gain or loss on the hedging instrument in profit or loss and adjust the carrying amount of the hedged item for the hedging gain or loss with the adjustment being recognised in profit or loss. However, the accounting is different for hedges of equity instruments for which an entity has elected to present fair value changes in other comprehensive income (see ‘Hedges of exposures affecting other comprehensive income‘).

Illustrative disclosure of the effects of hedge accounting on the financial position and performance

The impact of hedging instruments designated in fair value hedging relationships as of 31 December 20×0 on the statement of financial position of Alpha Beta Coffee Group (the Group) is, as follows:

Fair value hedges

Notional amount

Carrying amount

Line item reporting in the Statement of Financial Position

Change in fair value used for measuring ineffectiveness for the period

Interest rate risk

Receive fixed/pay variable interest rate swap

EUR 200 Million

-10.0

Long-term derivative financial liabilities

-2.0

Fair value hedges

Carrying amount

Thereof accumulated fair value adjustments

Line item reporting in the Statement of Financial Position

Change in fair value used for measuring ineffectiveness for the period

Interest rate risk

Fixed rate borrowings

211

11

Long-term borrowings

2.1

Fair value hedges

Ineffectiveness recognised in profit or loss

Line item reporting in the Statement of profit or loss

Interest rate risk

Fixed rate borrowings

-0.1

Other financial expenses

IFRS 7 further requires a reconciliation of the components in equity that arise in connection with hedge accounting (such as the hedging reserve) and an analysis of OCI. That information needs to be disaggregated by risk category, which can be done in the notes.

International Financial Reporting Standards 3

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