By Graeme Tosen
Graeme Tosen, the chief for technical accounting at HBOS Treasury providers in London, has written a step by step advisor to knowing and enforcing the hugely technical accounting ideas of the overseas monetary Reporting criteria (IFRS) that observe to derivatives and dependent finance.
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Graeme Tosen, the executive for technical accounting at HBOS Treasury companies in London, has written a step by step consultant to realizing and enforcing the hugely technical accounting ideas of the foreign monetary Reporting criteria (IFRS) that follow to derivatives and dependent finance.
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Extra resources for A Practical Guide to IFRS for Derivatives and Structured Finance
Accounting for fair value hedges The most basic explanation of what happens in a fair value hedge is that an amount is added to the income statement that would otherwise not have been recognised. This is used to set off the volatility caused by recognising the changes in fair value of the derivative (the hedging instrument) in profit or loss. Where a non-derivative is used to hedge foreign exchange risk, the foreign exchange portion of the non-derivative is recognised in profit or loss. Basically, the change in fair value of the hedged item (only that portion that is attributable to the specific risk designated as being hedged) is added to the carrying amount of the 42 Hedge accounting liability or asset (which most often would be at amortised cost) and this increase is recognised in the income statement.
That documentation shall include identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. (b) The hedge is expected to be highly effective […] in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship.
This should not include any future credit losses. What would form part of initial measurement at fair value? Fair value should be considered as defined by IAS 39. However, it should be noted that, for assets that are not fair valued through profit or loss, those transaction costs that are directly attributable to the acquisition or issue of the financial instrument should also be included in this fair value amount. Is fair value and original cost/transaction price always the same and, if not, how is the difference accounted for?
A Practical Guide to IFRS for Derivatives and Structured Finance by Graeme Tosen