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A cash flow hedge involves the use of a hedging instrument (a derivative) that essentially locks in the amount of a future cash inflow or outflow that would otherwise be impacted by movements in the market.
A cash flow hedge is a financial instrument designated as hedging exposure to variability in expected future cash flows attributed to a particular risk.
26 Οκτ 2024 · What is a Cash Flow Hedge? A cash flow hedge uses a hedging instrument to lock down specific cash inflows or outflows that would otherwise have been subject to the variability in market movements.
IFRS 9 hedge accounting applies to all hedge relationships, with the exception of fair value hedges of the interest rate exposure of a portfolio of financial assets or financial liabilities (commonly referred as ‘fair value macro hedges’).
Consistent with the equivalent requirements of IAS 39, paragraph 6.5.11(a) of IFRS 9 requires the cash flow hedge reserve to be adjusted for the lower of (a) the cumulative gain or loss on the hedging instrument or (b) the cumulative change in fair value of the hedged item.
Hedge accounting. Background. As noted above, derivatives are used by companies to manage risk. In the financial statements, they are remeasured to fair value at each reporting date, with the gain or loss recognised in profit or loss.
Obtain an understanding of the basic concepts of hedge accounting and the definition of cash flow hedges. Identify eligible hedged items and eligible hedging instruments for cash flow hedge accounting. Understand the requirements of applying cash flow hedge accounting.
