CFM27210 - Accounting for corporate finance: hedging: IAS 39: discontinuation of hedge accounting
When must hedge accounting cease?
Hedge accounting must be discontinued prospectively if:
- the hedging instrument expires or is sold, terminated, or exercised;
- the hedge no longer meets the hedge accounting criteria - for example, it is no longer highly effective;
- for cash flow hedges the forecast transaction is no longer expected to occur; or
- the entity revokes the hedge designation.
Cash flow hedges
If a cash-flow hedge is terminated as a result of a, b or d above, amounts recognised directly in equity will continue to be recognised in equity until the forecast transaction occurs, at which point they should be accounted for in accordance with IAS39 guidance in respect of transfers between equity and profit and loss (CFM27160).
If hedge accounting ceases for a cash flow hedge relationship because the forecast transaction is no longer expected to occur, gains and losses deferred in equity must be taken to the income statement immediately. If the transaction is still expected to occur and the hedge relationship ceases, the amounts accumulated in equity will be retained in equity until the hedged item affects profit or loss.
Fair value hedges
If fair value hedges are discontinued, the hedging instrument will continue to be recognised at fair value unless re-designated as the hedging instrument in a new hedge.
If a hedged financial asset or liability that is measured at amortised cost has been adjusted for the gain or loss attributable to the hedged risk in a fair value hedge, there will be a difference between its actual carrying value when the hedge ends, and its carrying value of an ‘unhedged’ basis. This adjustment is amortised to profit or loss over the period to maturity. Amortisation may begin as soon as an adjustment exists and must begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risks being hedged.
