IFRS 9 — Determining hedge effectiveness for net investment hedges

Date recorded:

IFRS 9 Financial Instruments — Net investment hedges - Comment Letter Analysis and Finalisation of Agenda Decision - Agenda paper 12


In November 2015, the IFRS Interpretations Committee discussed how hedge effectiveness should be determined when accounting for hedges of a net investment in a foreign operation (‘net investment hedges’) in accordance with IFRS 9 Financial Instruments. The Interpretations Committee discussed whether the ‘lower of test’ that is required for cash flow hedges should also be applied in determining the effective portion of the gains or losses arising from the hedging instrument when accounting for net investment hedges. The Interpretations Committee tentatively decided not to take this issue into its agenda because it concluded that the issue is not widespread and no diversity in practice was identified.

The purpose of this session was to analyse the comments letter received and discuss the staff recommendation.

Comment letter analysis

The staff indicated that all respondents agreed with the tentative agenda decision and only one respondent suggested changes to the wording of the tentative agenda decision. That respondent requested that the agenda decision should be clarified because in the case of net investment hedges, the cumulative changes of the hedged item would not be on the basis of fair value or present value but would, instead, be on the basis of translation differences. Consequently, an entity would not be able to apply the ‘lower of’ test literally as it was drafted in paragraph 6.5.11(a)(ii) of IFRS 9 but only an approach similar to the approach described in that paragraph of the Standard. The staff considered that the requirements in paragraph 6.5.13 of IFRS 9 together with the Interpretation Committee’s tentative agenda decision provided clarity on the submission received.

Staff recommendation

The staff recommended finalising the agenda decision without modifications.


The Interpretations Committee approved the staff recommendation subject to some wording changes.

During the discussion some Interpretations Committee members raised a concern because of the introduction of a requirement about performing a hedge effectiveness using present value measurements. The concern was also related to whether there were changes to current practice being introduced.

The staff clarified that IFRS 9 was clear that the analysis should be done on a present value basis while IAS 39 was not clear although it was common practice to perform the analysis using present value measurements.

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