To mark this momentous year for UK GAAP, I'm embarking on a mission to work my way through FRS 102, reading a portion on each working day of 2015 and writing a short blog entry on my thoughts and musings (be they few or many).
Day 40 (20 Mar)
In yesterday's blog post, I discussed hedged items and hedging instruments (within section 12 of FRS 102).
Paras 12.16-16C outline the scope for treating items as hedged items. Such items (provided they can be measured reliably) can be:
Hedge accounting is only appropriate when dealing with an external party, and thus wouldn't apply to an intra-group arrangement except in limited cases (such as where one party is a subsidiary which is, for whatever reason, not being included in the group accounts).
Hedged items can consist of a group of components which met criteria in 12.16B-C (mainly that the risk position is shared by all).
Paras 12.17-12.17C do the same for hedging instruments, which need to be financial instruments measured at FVTPL (see last week's post) and are a contract with an external party (external to the group or individual entity being reported on). Written options are generally excluded from the definition.
Finally, 12.18-18A outline the five conditions for using hedge accounting (the first being that the relationship consists only of a suitable hedged item and hedging instrument). The other four are important to bear in mind:
Phew! Need a break? Why not take a weekend off - I intend to. See you on Monday.
If you missed the last instalment click here