Abstract

The financial crisis did not expose specific weaknesses with hedge accounting in the same way as it is claimed for classification measurement and impairment. The hedge accounting model in International Accounting Standard (IAS) 39 has been criticised as being complex, rule-based, and failing to reflect companies’ activities related to risk management. Hedge accounting is a controversial topic in financial reporting and has long been an area of difficulty both for companies seeking to inform investors about what they are doing and for standard-setters in their attempt to apply the appropriate regulation. Some consider that it causes profit or loss volatility from what might be regarded as ‘artificial’ hedge ineffectiveness which is not representative of the entity’s risk management activities. To improve financial reporting and better reflect risk management activities the International Accounting Standards Board (IASB) decided that comprehensive changes were needed. As a result, the new IFRS 9 Financial Instruments develop a model for hedge accounting that is more representative of the risk activities. The present paper aims to present the requirements of the new hedge accounting according to the International Financial Reporting Standards (IFRS) 9 Financial Instruments. The practical problems of risk management and hedge accounting for companies have been also considered.