IFRS 9 — Transition issues relating to hedging

Date recorded:


In May 2015, the Interpretations Committee was asked to consider whether an entity could treat a hedging relationship as continuing on transition from IAS 39 to IFRS 9 if the hedged item was changed from an entire non-financial item to a component of a non-financial item and this was to align the accounting with its risk management objective (Issue 1). If Issue 1 requires dedesignation, the Committee was asked whether this changed if the entire non-financial item remained designated (Issue 2).

The Committee had discussed the issues in its September 2015 meeting and decided to publish an agenda decision as in the Committee’s view, IFRS 9 provided sufficient guidance on the issues.

The tentative agenda decision stated that treating the hedging relationship as a continuing hedging relationship in Issue 1 implied a retrospective designation of a hedging relationship which was not permitted as IFRS 9 required prospective application of the hedge accounting requirements.

As regards Issue 2, the tentative agenda decision stated that not changing the designation would result in a mismatch between the designation and the entity’s risk management objective (i.e. proxy hedging). Proxy hedging was not prohibited by IFRS 9. The Standard acknowledged that it would not always be possible to replicate the actual risk management perspective. Therefore, the entity could continue the hedging relationship.

The Interpretations Committee received two comment letters on the tentative agenda decision. Both respondents agreed with the agenda decision with one respondent suggesting to add further context. However, the staff believes that the agenda decision provides sufficient context and therefore recommends to finalise the agenda decision without any changes.

The staff ask whether the Committee agrees with the staff recommendation.

Committee discussion

The Committee unanimously agreed with the agenda decision. One Committee member suggested that the agenda decision should also consider the entity’s risk management strategy with regard to issue 2. The Chairman agreed that the context of risk management should be added.

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