CFM16275 - Accounting for financial instruments: IAS 32 and IAS 39: examples of hedged items

Hedged items

A hedged item can be:

• a single recognised asset or liability, firm commitment (CFM16040), highly probable transaction, or a net investment in a foreign operation;
• a group of assets, liabilities, firm commitments, highly probable forecast transactions, or net investments in foreign operations with similar risk characteristics;
• a held-to-maturity (HTM) investment for foreign currency or credit risk (but not for interest risk or the risk that the issuer will repay the debt early);
• a portion of the cash flows or fair value of a financial asset or financial liability;
• a non-financial asset or non-financial liability for foreign currency risk only, or the risk of changes in fair value of the entire item; and
• in a portfolio hedge of interest rate risk ("macro hedge" – see CFM16315) only, a portion of the portfolio of financial assets or financial liabilities that share the risk being hedged.

Derivatives cannot be hedged items (though a written option may offset a purchased option).

Because you assess hedge effectiveness by comparing the change in the fair value or cash flow of a hedging instrument (or group of similar instruments) and a hedged item (or group of similar items), comparing a hedging instrument with an overall net position – for example, the net fair value or cash flows of all fixed rate assets and fixed rate liabilities with similar maturities – does not qualify for hedge accounting.

CFM16275a covers further rules on qualifying hedged items.

CFM16275b gives some more detailed examples of hedged items.