Hedge Accounting: An Auditor’s Perspective

Abstract

Radical changes have been introduced in the hedge accounting framework by the new IFRS accounting standards. In particular, the hedge effectiveness regime has been completely overhauled and replaced by a strong principles-based charter. The relevance of qualitative assessment procedures has, accordingly, increased making the audit of such assignments immensely challenging. Pronouncements from regulatory bodies providing professional guidance on audit issues of hedge accounting and effectiveness testing have failed to keep pace with this rapid transition, enhancing the complexity of such audit exercises. In the present article, after providing a brief analysis of the contemporary hedge accounting and effectiveness testing provisions, we dwell upon the salient issues connected with the auditor's predicament and highlight the way forward in the changed environment.

Determinants of hedge accounting adoption by brazilian banks

“…Notwithstanding the benefits associated with hedge accounting, applicable accounting standardsthe International Accounting Standard [IAS] 39, until 2017, and the International Financial Reporting Standard [IFRS] 9, as of 2018treat this practice as a prerogative of the entity and not mandatory handling. Moreover, they impose a series of requirements, mainly associated with proving the effectiveness of the protection and documentation relationship so that hedge accounting can be adopted, which results in the assumption of associated costs (Bernhardt et al, 2016;Singh, 2019). Combining these elements justifies knowing which factors explain the entity's decision to adopt the hedge accounting practice.…”

Determinantes da adoção do hedge accounting pelos bancos brasileiros

“…Não obstante os benefícios associados à contabilidade de hedge, as normas contábeis aplicáveisa International Accounting Standard [IAS] 39, até 2017, e a International Financial Reporting Standard [IFRS] a 9, a partir de 2018tratam essa prática como uma prerrogativa da entidade e não um tratamento obrigatório. Adicionalmente, impõem uma série de requisitos, principalmente associados à comprovação da efetividade da relação de proteção e de documentação para que possa ser adotado o hedge accounting, o que resulta na assunção dos custos associados (Bernhardt et al, 2016;Singh, 2019). A combinação desses elementos justifica a necessidade de se conhecer quais fatores explicam a decisão da entidade em adotar a prática da contabilidade de hedge.…”