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22/04/2015 / Hedge Accounting

AASB 9 Hedge Accounting Standard - Are You Prepared?

The current strict hedge accounting rules laid out in AASB 139 Financial Instruments: Recognition and Measurement are being replaced by much more practical ‘easier’ rules in the new standard AASB 9 Financial Instruments. These new rules will become mandatory for accounting periods starting on or after 1 January 2018 but Australian companies can early adopt these rules at any time between now and that date.

The new standard has simplified the hedge effectiveness testing criteria and has removed the 80-125% "highly effective" threshold and the mandatory requirement to perform forward and backward looking mathematical effectiveness tests. Under the new standard, for cash flow hedging of interest rate risk, if the item being hedged (hypothetical derivative) perfectly mirrors (i.e. the same quantity, timing and index) the hedging instrument (e.g. swap derivative) - then it may be sufficient to only carry out a forward looking qualitative test without the need to perform any further mathematical calculations at the start of the hedge relationship, thereby reducing the amount of mathematical calculations required to be performed to qualify for hedge accounting. 

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