Question

IFRS 9 Financial Instruments allows the use of hedge accounting if certain criteria are met. Which of the following is NOT one of these criteria?

The hedging relationship consists of only eligible hedging instruments and hedged items

At the beginning of the hedge there is formal designation of the hedge relationship and the entity's risk management objective

The hedge meets certain criteria that make it effective

Gains and losses on the hedged item and hedging instrument net off exactly

Answer 1

As per IFRS 9 -A hedging relationship qualifies for hedge accounting only if all of the following criteria are met:

1. the hedging relationship consists only of eligible hedging instruments and eligible hedged items.
2. at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge.
3. the hedging relationship meets all of the hedge effectiveness requirements.

Hence the following is not the criteria-

Gains and losses on the hedged item and hedging instrument net off exactly