Fair value hedge
Under IFRS 9, recognise the gain or loss on the hedging instrument in profit or loss, subject to applicable exceptions, and adjust the carrying amount of the hedged item for the gain or loss attributable to the hedged risk, recognising the adjustment in the appropriate location. The relationship must meet designation, documentation and effectiveness requirements. It differs from a cash flow hedge, where the effective portion generally enters other comprehensive income.
Worked example
An entity hedges the interest-rate fair-value risk of fixed-rate debt. The hedging derivative gains $9,000 and the designated hedged risk increases the debt’s carrying amount by $8,500. Subject to applicable rules, the net $500 effect is recognised in profit or loss.
Common mistake
Treating all hedge accounting as cash flow hedge accounting, or adjusting the hedged item for unrelated movements outside the designated risk.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | SBR | Direct | September 2026–June 2027 |