Hedge accounting
The principle objective of hedge accounting is to show derivative hedging transactions from the treasury division in recognition or compensation of equity in the balance sheet and the income statement of a company. The need for hedge accounting regulations stems from the different methods of measurement for the various categories of financial instruments in the mixed model method of international accounting under IFRS (IAS 39) or US GAAP (SFA 133).
Hedge accounting fundamentally comprises the following parts:
- Definition and documentation of the risk management strategy
- Designation and documentation of hedge accounting transactions
- Calculation of methods for recognition in the balance sheet and changes in value in the income statement
- Effectiveness measurement