AASB 139 Financial Instruments: Recognition and Measurement July 2004 (Cth)
| Compiled AASB Standard | AASB 139 |
Financial Instruments: Recognition and Measurement
This compiled Standard applies to annual reporting periods beginning on or after 1 January 2018. Early application is permitted for annual reporting periods beginning on or after 24 July 2014 but before 1 January 2018. It incorporates relevant amendments made up to and including 17 December 2014.
Prepared on 12 March 2015 by the staff of the Australian Accounting Standards Board.
Obtaining Copies of Accounting Standards
Compiled versions of Standards, original Standards and amending Standards (see Compilation Details) are available on the AASB website: copies of original Standards and amending Standards are available for purchase by contacting:
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COPYRIGHT
© 2015 Commonwealth of Australia
This compiled AASB Standard contains IFRS Foundation copyright material. Reproduction within Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use subject to the inclusion of an acknowledgment of the source. Requests and enquiries concerning reproduction and rights for commercial purposes within Australia should be addressed to The Director of Finance and Administration, Australian Accounting Standards Board, PO Box 204, Collins Street West, Victoria 8007.
All existing rights in this material are reserved outside Australia.
Reproduction outside Australia in unaltered form (retaining this notice) is permitted for personal and non-commercial use only. Further information and requests for authorisation to reproduce for commercial purposes outside Australia should be addressed to the IFRS Foundation at align="center">CONTENTS
COMPILATION DETAILS
COMPARISON WITH IAS 39
ACCOUNTING STANDARD
AASB 139 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
Paragraphs
Application Aus1.1 – Aus1.5
Scope 2 – 2A
Definitions 8 – 9
Hedging 71
Hedging Instruments
Qualifying Instruments 72 – 73
Designation of Hedging Instruments 74 – 77
Hedged Items
Qualifying Items 78 – 80
Designation of Financial Items as Hedged Items 81 – 81A
Designation of Non-Financial Items as Hedged Items 82
Designation of Groups of Items as Hedged Items 83 – 84
Hedge Accounting 85 – 88
Fair Value Hedges 89 – 94
Cash Flow Hedges 95 – 101
Hedges of a Net Investment 102
Effective Date and Transition 103K – 108D
Appendix A:
Application Guidance
Definitions
Effective Interest Rate AG8A – AG8C
Hedging
Hedging Instruments
Qualifying Instruments AG94 – AG97
Hedged Items
Qualifying Items AG98 – AG99F
Designation of Non-Financial Items as Hedged Items AG100
Designation of Groups of Items as Hedged Items AG101
Hedge Accounting AG102 – AG104
Assessing Hedge Effectiveness AG105 – AG113A
Fair Value Hedge Accounting for a Portfolio Hedge of Interest Rate Risk AG114 – AG132
Transition AG133
ILLUSTRATIVE EXAMPLE Page 33
DELETED IAS 39 TEXT Page 40
IMPLEMENTATION GUIDANCE
(available on the AASB website)
BASIS FOR CONCLUSIONS ON IAS 39
(available on the AASB website)
Australian Accounting Standard AASB 139 Financial Instruments: Recognition and Measurement (as amended) is set out in paragraphs Aus1.1 – 108D and Appendix A. All the paragraphs have equal authority. Terms defined in this Standard are in italics the first time they appear in the Standard. AASB 139 is to be read in the context of other Australian Accounting Standards, including AASB 1048 Interpretation of Standards, which identifies the Australian Accounting Interpretations. In the absence of explicit guidance, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors provides a basis for selecting and applying accounting policies.
COMPILATION DETAILS
Accounting Standard AASB 139 Financial Instruments: Recognition and Measurement as amended
This compiled Standard applies to annual reporting periods beginning on or after 1 January 2018. It takes into account amendments up to and including 17 December 2014 and was prepared on 12 March 2015 by the staff of the Australian Accounting Standards Board (AASB).
This compilation is not a separate Accounting Standard made by the AASB. Instead, it is a representation of AASB 139 (July 2004) as amended by other Accounting Standards, which are listed in the Table below.
Table of Standards
| Standard | Date made | Application date | Application, saving or transitional provisions | |
| AASB 139 | 15 Jul 2004 | (beginning) 1 Jan 2005 | ||
| AASB 2004-2 | 22 Dec 2004 | (beginning) 1 Jan 2005 | – | |
| AASB 2005-1 | 5 May 2005 | (beginning) 1 Jan 2006 | see (a) below | |
| AASB 2005-4 | 9 Jun 2005 | (beginning) 1 Jan 2006 | see (a) below | |
| AASB 2005-5 | 9 Jun 2005 | (beginning) 1 Jan 2006 | see (a) below | |
| AASB 2005-9 | 6 Sep 2005 | (beginning) 1 Jan 2006 | see (a) below | |
| AASB 2005-10 | 5 Sep 2005 | (beginning) 1 Jan 2007 | see (b) below | |
| AASB 2005-11 | 8 Sep 2005 | (ending) 31 Dec 2005 | see (c) below | |
| Erratum | 24 Feb 2006 | (ending) 24 Feb 2006 | see (d) below | |
| AASB 2007-2 | 15 Feb 2007 | (ending) 28 Feb 2007 | see (e) below | |
| AASB 2007-4 | 30 Apr 2007 | (beginning) 1 Jul 2007 | see (f) below | |
| AASB 2007-8 | 24 Sep 2007 | (beginning) 1 Jan 2009 | see (g) below | |
| AASB 2007-10 | 13 Dec 2007 | (beginning) 1 Jan 2009 | see (g) below | |
| AASB 2008-2 | 5 Mar 2008 | (beginning) 1 Jan 2009 | see (h) below | |
| AASB 2008-3 | 6 Mar 2008 | (beginning) 1 Jul 2009 | see (i) below | |
| AASB 2008-5 | 24 Jul 2008 | (beginning) 1 Jan 2009 | see (j) below | |
| AASB 2008-8 | 27 Aug 2008 | (beginning) 1 Jul 2009 | see (k) below | |
| AASB 2008-10 | 22 Oct 2008 | (ending) 1 Jul 2008 | see (l) below | |
| AASB 2008-12 | 18 Dec 2008 | (ending) 1 Jul 2008 | see (l) below | |
| AASB 2009-3 | 22 Apr 2009 | (ending) 30 Jun 2009 | see (l) below | |
| AASB 2009-5 | 21 May 2009 | (beginning) 1 Jan 2010 | see (m) below | |
| AASB 2009-6 | 25 Jun 2009 | (beginning) 1 Jan 2009 and (ending) 30 Jun 2009 | see (n) below | |
| AASB 2009-7 | 25 Jun 2009 | (beginning) 1 Jul 2009 | see (o) below | |
| Erratum | 5 Oct 2009 | (beginning) 1 Jan 2009 and (ending) 30 Jun 2009 | see (p) below | |
| AASB 2009-11 | 7 Dec 2009 | (beginning) 1 Jan 2018 | see (q) below | |
| AASB 2009-12 | 15 Dec 2009 | (beginning) 1 Jan 2011 | see (r) below | |
| AASB 2010-3 | 23 Jun 2010 | (beginning) 1 Jul 2010 | see (s) below | |
| AASB 2010-5 | 27 Oct 2010 | (beginning) 1 Jan 2011 | see (r) below | |
| AASB 2010-7 | 6 Dec 2010 | (beginning) 1 Jan 2018 | see (t) below | |
| AASB 2011-7 | 29 Aug 2011 | (beginning) 1 Jan 2013 | see (u) below | |
| AASB 2011-8 | 2 Sep 2011 | (beginning) 1 Jan 2013 | see (v) below | |
| AASB 2013-4 | 19 Jul 2013 | (beginning) 1 Jan 2014 | see (w) below | |
| AASB 2013-5 | 14 Aug 2013 | (beginning) 1 Jan 2014 | see (x) below | |
| AASB 2013-9 | 20 Dec 2013 | Pt B (beginning) 1 Jan 2014 | see (y) below | |
| AASB 2014-1 | 4 Jun 2014 | Pt A (beginning) 1 Jul 2014 Pt E (beginning) 1 Jan 2018 | see (z) below see (aa) below | |
| AASB 2014-5 | 12 Dec 2014 | (beginning) 1 Jan 2017 | see (ab) below | |
| AASB 2014-7 | 17 Dec 2014 | (beginning) 1 Jan 2018 | see (ac) below | |
(a) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2006.
(b) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2007.
(c) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 that end before 31 December 2005.
(d) Entities may elect to apply this Erratum to annual reporting periods beginning on or after 1 January 2005 that end before 24 February 2006.
(e) Entities may elect to apply the relevant amendments to annual reporting periods beginning on or after 1 January 2005 that end before 28 February 2007.
(f) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2007.
(g) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods.
(h) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009.
(i) Entities may elect to apply this Standard to annual reporting periods beginning on or after 30 June 2007 but before 1 July 2009, provided that AASB 3 Business Combinations (March 2008) and AASB 127 Consolidated and Separate Financial Statements (March 2008) are also applied to such periods.
(j) Entities may elect to apply this Standard, or its amendments to individual Standards, to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009.
(k) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2009.
(l) Entities are not permitted to apply this Standard to earlier annual reporting periods.
(m) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2010.
(n) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2009, provided that AASB 101 Presentation of Financial Statements (September 2007) is also applied to such periods, and to annual reporting periods beginning on or after 1 January 2009 that end before 30 June 2009.
(o) Entities may elect to apply this Standard to annual reporting periods beginning before 1 July 2009 that end on or after 1 July 2008.
(p) Entities may elect to apply this Erratum to annual reporting periods beginning on or after 1 January 2005, provided that AASB 2009-6 Amendments to Australian Accounting Standards is also applied to such periods.
(q) AASB 2009-11 has been amended by AASB 2010-10 (made 31 December 2010) and AASB 2012-6 (made 10 September 2012). Part E of AASB 2014-1 (made 4 June 2014) updated the application date of the amendments in this Standard to 1 January 2018.
Entities may elect to apply the amendments in this Standard to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2018, provided that AASB 9 (2009) Financial Instruments is also applied to such periods.
(r) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2011.
(s) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2010.
(t) AASB 2010-7 has been amended by AASB 2010-10 (made 31 December 2010) and AASB 2012-6 (made 10 September 2012). Part E of AASB 2014-1 (made 4 June 2014) updated the application date of the amendments in this Standard to 1 January 2018.
Entities may elect to apply the amendments in this Standard as set out in paragraph 6 of AASB 2010-7.
(u) AASB 2011-7 has been amended by AASB 2012-6 (made 10 September 2012) and AASB 2012-10 (made 18 December 2012).
For-profit entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2013. The Standard applies for not-for-profit entities to annual reporting periods beginning on or after 1 January 2014. Not-for-profit entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2013 but before 1 January 2014. If an entity elects to apply this Standard to such annual reporting periods, it shall also apply AASB 10 Consolidated Financial Statements and associated Standards to such periods.
(v) AASB 2011-8 has been amended by AASB 2011-10 (made 5 September 2011) and AASB 2012-6 (made 10 September 2012).
Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2013, provided that AASB 13 Fair Value Measurement is also applied to such periods.
(w) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2014.
(x) For-profit entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2014. Not-for-profit entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2013 but before 1 January 2014. If an entity elects to apply this Standard to such annual reporting periods, it shall also apply AASB 10 Consolidated Financial Statements and associated Standards to such periods.
(y) Early application of Part B of this Standard is not permitted.
(z) Entities may elect to apply Part A of this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 July 2014.
(aa) Entities may elect to apply Part E of this Standard to annual reporting periods ending on or after 31 December 2009 that begin before 1 January 2018, provided that AASB 9 Financial Instruments (2009) or AASB 9 Financial Instruments (2010) is also applied to such periods.
(ab) Entities may elect to apply this Standard to annual reporting periods beginning on or after 1 January 2005 but before 1 January 2017, provided that AASB 15 Revenue from Contracts with Customers is also applied to such periods.
(ac) Entities may elect to apply this Standard to annual reporting periods beginning on or after 24 July 2014 but before 1 January 2018, provided that AASB 9 Financial Instruments (2014) is also applied to such periods.
Table of Amendments
| Paragraph affected | How affected | By … [paragraph] |
| 1 (preceding heading) | deleted | AASB 2014-1E [93] |
| 1 | amended amended deleted | AASB 2005-10 [30] AASB 2009-11 [36] AASB 2010-7 [7, 41] |
| Aus1.1 | amended | AASB 2007-8 [7, 8] |
| Aus1.4 | amended deleted | AASB 2007-8 [8] AASB 2013-9B [37] |
| 2 | amended amended amended amended amended amended amended amended amended amended amended amended | AASB 2005-5 [11] AASB 2005-9 [15] Erratum, Feb 2006 AASB 2008-2 [34] AASB 2008-3 [78] AASB 2009-5 [20] AASB 2010-7 [42] AASB 2011-7 [51] AASB 2013-5 [49] AASB 2014-1E [94] AASB 2014-5 [38] AASB 2014-7 [49] |
| 2A | added | AASB 2014-5 [38] |
| 3 | deleted | AASB 2005-9 [16] |
| 4 | amended amended amended deleted | AASB 2005-9 [17] AASB 2010-7 [42] AASB 2014-1E [94] AASB 2014-7 [49] |
| 5 | amended deleted | AASB 2014-1E [94] AASB 2014-7 [49] |
| 5A | added deleted | AASB 2014-1E [94] AASB 2014-7 [49] |
| 6-7 | deleted | AASB 2014-7 [49] |
| 8 | amended amended amended | Erratum, Feb 2006 AASB 2010-7 [43] AASB 2014-7 [49] |
| 9 | amended amended amended amended amended amended amended amended amended amended amended amended | AASB 2005-4 [7] AASB 2005-9 [18] AASB 2005-10 [31] AASB 2007-4 [101] AASB 2008-5 [64] AASB 2009-6 [91] AASB 2009-11 [37, 38] AASB 2010-7 [7, 44] AASB 2011-8 [84, 85] AASB 2014-1A [28] AASB 2014-5 [38] AASB 2014-7 [50] |
| 10 | amended deleted amended | AASB 2009-11 [39] AASB 2010-7 [7, 45] AASB 2014-1A [39] |
| 11 | amended amended deleted | AASB 2007-8 [128] AASB 2009-11 [39] AASB 2010-7 [7, 45] |
| 11A | added amended deleted | AASB 2005-4 [8] AASB 2009-11 [39] AASB 2010-7 [7, 45] |
| 12 | amended amended amended deleted | AASB 2005-4 [9] AASB 2007-8 [129] AASB 2009-3 [5] AASB 2010-7 [45] |
| 13 | amended amended deleted amended | AASB 2005-4 [9] AASB 2009-11 [39] AASB 2010-7 [7, 45] AASB 2011-8 [85] |
| 14 | amended amended deleted | AASB 2007-8 [130] AASB 2009-11 [39] AASB 2010-7 [7, 45] |
| 15 | amended deleted amended | AASB 2007-2 [10] AASB 2010-7 [45] AASB 2011-7 [52] |
| 16-18 | deleted | AASB 2010-7 [45] |
| 19 | amended deleted | AASB 2007-8 [6] AASB 2010-7 [45] |
| 20-25 | deleted | AASB 2010-7 [45] |
| 26-27 | amended deleted | AASB 2009-11 [40] AASB 2010-7 [7, 45] |
| 28 | deleted amended | AASB 2010-7 [45] AASB 2011-8 [85] |
| 29-30 | deleted | AASB 2010-7 [45] |
| 31 | amended deleted | AASB 2009-11 [40] AASB 2010-7 [7, 45] |
| 32 | deleted | AASB 2010-7 [45] |
| 33-34 | amended deleted | AASB 2009-11 [40] AASB 2010-7 [7, 45] |
| 35-42 | deleted | AASB 2010-7 [45] |
| 43 (preceding heading) | amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 43 | amended deleted amended | AASB 2009-11 [41] AASB 2010-7 [7, 45] AASB 2014-5 [38] |
| 43A | deleted added | AASB 2010-7 [45] AASB 2011-8 [85] |
| 44 | amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 44A | deleted added | AASB 2010-7 [45] AASB 2014-5 [38] |
| 45 (preceding heading) | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 45 | amended amended deleted deleted | AASB 2005-10 [32] AASB 2007-8 [6] AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 46 | deleted deleted amended | AASB 2009-11 [41] AASB 2010-7 [7, 45] AASB 2014-1A [39] |
| 47 | amended amended amended deleted amended amended | AASB 2005-9 [19] AASB 2007-4 [101] AASB 2009-11 [41] AASB 2010-7 [7, 45] AASB 2011-8 [85] AASB 2014-5 [38] |
| 48 | amended amended deleted deleted | AASB 2005-10 [33] AASB 2009-11 [41] AASB 2010-7 [7, 45] AASB 2011-8 [85] |
| 48A | added deleted deleted | AASB 2005-4 [10] AASB 2010-7 [45] AASB 2011-8 [85] |
| 49 | deleted deleted | AASB 2010-7 [45] AASB 2011-8 [85] |
| 50 | amended amended deleted | AASB 2008-10 [6] AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 50A | added amended deleted | AASB 2008-5 [65] AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 50B-50F | added deleted deleted | AASB 2008-10 [7] AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 51-52 | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 53 | amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 54 | amended amended deleted | AASB 2007-8 [131] AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 55 | amended amended amended deleted amended | AASB 2007-8 [131] AASB 2009-6 [92] AASB 2009-11 [41] AASB 2010-7 [7, 45] AASB 2014-5 [38] |
| 55A | deleted added | AASB 2010-7 [45] AASB 2014-5 [38] |
| 56 | amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 45] |
| 57 | amended amended deleted | AASB 2009-11 [41] AASB 2010-5 [59] AASB 2010-7 [7, 45] |
| 58 (preceding heading) | amended amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 47] AASB 2014-7 [51] |
| 58 | amended amended amended deleted | AASB 2007-8 [6] AASB 2009-11 [41] AASB 2010-7 [7, 47] AASB 2014-7 [51] |
| 59-60 | deleted | AASB 2014-7 [51] |
| 61 | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 62 | deleted | AASB 2014-7 [51] |
| 63 (preceding heading) | deleted deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 46] AASB 2014-7 [51] |
| 63 | amended amended deleted | AASB 2009-11 [41] AASB 2010-7 [7, 47] AASB 2014-7 [51] |
| 64-65 | deleted | AASB 2014-7 [51] |
| 66 (preceding heading) | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 66 | deleted deleted amended | AASB 2009-11 [41] AASB 2010-7 [7, 46] AASB 2014-1A [39] |
| 67 (preceding heading) | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 67 | amended deleted deleted | AASB 2007-8 [6] AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 68 | amended deleted deleted | AASB 2007-8 [132] AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 69-70 | deleted deleted | AASB 2009-11 [41] AASB 2010-7 [7, 46] |
| 71 | amended amended | AASB 2014-1E [94] AASB 2014-7 [52] |
| 73 | amended | AASB 2008-5 [64] |
| 79 | deleted deleted | AASB 2009-11 [42] AASB 2010-7 [7, 48] |
| 80 | amended amended amended | AASB 2005-1 [6] AASB 2009-5 [20] AASB 2013-5 [49] |
| 88 | amended amended amended amended amended | Erratum, Feb 2006 AASB 2009-11 [42] AASB 2010-7 [7, 48] AASB 2011-8 [85] AASB 2014-1E [94] |
| 89 | amended amended amended | AASB 2009-11 [42] AASB 2010-7 [7, 48] AASB 2014-7 [52] |
| 90 | amended amended | AASB 2009-11 [42] AASB 2010-7 [7, 48] |
| 91 | amended | AASB 2013-4 [6] |
| 95 | amended | AASB 2007-8 [133] |
| 96 | amended amended | AASB 2009-11 [42] AASB 2010-7 [7, 48] |
| 97 | amended amended | AASB 2007-8 [134] AASB 2009-5 [20] |
| 98 | amended | AASB 2007-8 [135] |
| 100 | amended amended | AASB 2007-8 [135] AASB 2009-5 [20] |
| 101 | amended amended | AASB 2007-8 [136] AASB 2013-4 [6] |
| 102 | amended amended | AASB 2007-8 [137] AASB 2008-3 [79] |
| 103 (preceding heading) | amended amended amended | AASB 2005-1 [7] AASB 2008-5 [66] AASB 2009-3 [6] |
| 103A-103B | note added | AASB 2005-9 [20] |
| 103C | note added | AASB 2007-8 [138] |
| 103D | note added paragraph added (in place of note) deleted | AASB 2008-3 [80] AASB 2014-7 [53] |
| 103E | note added | AASB 2008-3 [80] |
| 103F | note added | AASB 2008-2 [35] |
| 103G | note added | AASB 2008-8 [5] |
| 103K | amended | AASB 2014-1E [95] |
| Aus103H-Aus103I | added | AASB 2008-12 [5] |
| Aus103H | renumbered as 103H and amended | AASB 2009-7 [14] |
| Aus103I | renumbered as 103I and amended | AASB 2009-7 [15] |
| 103H-103I | deleted | AASB 2010-7 [49] |
| 103J | added deleted | AASB 2009-3 [6] AASB 2010-7 [49] |
| 103K | added amended | AASB 2009-5 [21] AASB 2010-7 [49] |
| 103L-103M | added deleted | AASB 2009-11 [43] AASB 2010-7 [7, 49] |
| 103N | added deleted | AASB 2010-3 [13] AASB 2014-7 [53] |
| 103O | added deleted | AASB 2010-7 [49] AASB 2014-1E [95] |
| 103P | added deleted | AASB 2011-7 [51] AASB 2014-7 [53] |
| 103Q | added | AASB 2011-8 [85] |
| 103R | added | AASB 2013-5 [50] |
| 103S | added deleted | AASB 2014-1E [95] AASB 2014-7 [53] |
| 103T | added | AASB 2014-5 [38] |
| 103U | added | AASB 2014-7 [53] |
| 104 | paragraph added (in place of note) | AASB 2010-7 [49] |
| 105 | amended amended deleted | AASB 2005-4 [11] AASB 2007-8 [139] AASB 2010-7 [49] |
| 105A-105D | added deleted | AASB 2005-4 [11] AASB 2010-7 [49] |
| 107A | note added | AASB 2009-6 [93] |
| 108 | added | AASB 2007-8 [139] |
| 108A-108B | added | AASB 2005-1 [8] |
| 108C | added amended amended amended | AASB 2008-5 [67] AASB 2009-5 [20] AASB 2010-7 [49] AASB 2014-1E [95] |
| 108D | added | AASB 2013-4 [6] |
| 108E | added deleted | AASB 2014-1E [95] AASB 2014-7 [53] |
| 108F | added deleted | AASB 2014-1A [28] AASB 2014-7 [53] |
| AG1 | amended deleted | AASB 2007-4 [101] AASB 2014-7 [54] |
| AG2 | amended amended deleted | AASB 2007-4 [101] AASB 2014-5 [39] AASB 2014-7 [54] |
| AG3 | amended amended amended amended deleted | AASB 2007-4 [100,101] AASB 2009-11 [44] AASB 2010-7 [7, 50] AASB 2011-7 [52] AASB 2014-7 [54] |
| AG3A | amended amended deleted | AASB 2009-11 [44] AASB 2010-7 [7, 50] AASB 2014-7 [54] |
| AG4 | renumbered as AG3A renumbered from AG4A amended amended amended amended deleted | AASB 2005-9 [21] AASB 2007-8 [140] |
| AG4A | renumbered as AG4 added amended deleted | AASB 2005-9 [21] AASB 2005-9 [22] AASB 2007-10 [90] AASB 2014-7 [54] |
| AG4B (preceding heading) | added deleted | AASB 2005-4 [12] AASB 2010-7 [51] |
| AG4B | added amended deleted | AASB 2005-4 [12] AASB 2009-11 [44] AASB 2010-7 [7, 51] |
| AG4C | added amended amended deleted | AASB 2005-4 [12] AASB 2007-10 [90] AASB 2009-11 [44] AASB 2010-7 [7, 51] |
| AG4D (preceding heading) | added deleted | AASB 2005-4 [12] AASB 2010-7 [51] |
| AG4D | added amended amended deleted | AASB 2005-4 [12] AASB 2007-10 [90] AASB 2009-11 [44] AASB 2010-7 [7, 51] |
| AG4E | added amended amended amended deleted | AASB 2005-4 [12] AASB 2007-4 [101] AASB 2007-8 [140] AASB 2009-11 [44] AASB 2010-7 [7, 51] |
| AG4F-AG4G | added deleted | AASB 2005-4 [12] AASB 2010-7 [51] |
| AG4H (preceding heading) | added deleted | AASB 2005-4 [12] AASB 2010-7 [51] |
| AG4H | added amended deleted | AASB 2005-4 [12] AASB 2009-11 [44] AASB 2010-7 [7, 51] |
| AG4I | amended amended deleted amended | AASB 2007-4 [101] AASB 2009-11 [44] AASB 2010-7 [7, 51] AASB 2011-7 [52A] |
| AG4J-AG4K | deleted | AASB 2010-7 [51] |
| AG5-AG7 | deleted | AASB 2014-7 [54] |
| AG8 | amended amended amended amended amended deleted | AASB 2008-5 [64] AASB 2008-10 [8] AASB 2008-12 [6] AASB 2009-11 [44] AASB 2010-7 [7, 51] AASB 2014-7 [54] |
| AG8A-AG8C | added | AASB 2014-5 [39] |
| AG9-AG12A | deleted | AASB 2010-7 [51] |
| AG13 | deleted | AASB 2014-7 [54] |
| AG14 (preceding heading) | amended deleted | AASB 2009-11 [45] AASB 2010-7 [7, 51] |
| AG14-AG15 | deleted | AASB 2010-7 [51] |
| AG16 (preceding heading) | deleted | AASB 2009-11 [45] |
| AG16-AG22 | deleted deleted | AASB 2009-11 [45] AASB 2014-7 [54] |
| AG23 | amended deleted deleted | Erratum, Feb 2006 AASB 2009-11 [45] AASB 2014-7 [54] |
| AG24 | deleted deleted | AASB 2009-11 [45] AASB 2014-7 [54] |
| AG25 | amended amended deleted deleted | AASB 2007-8 [6] Erratum, Oct 2009 [4] AASB 2009-11 [45] AASB 2014-7 [54] |
| AG26 (preceding heading) | deleted | AASB 2009-11 [45] |
| AG26 | deleted deleted | AASB 2009-11 [45] AASB 2014-7 [54] |
| AG27 (preceding heading) | deleted | AASB 2014-1E [96] |
| AG27-AG28 | deleted | AASB 2010-7 [52] |
| AG29 | amended amended deleted | AASB 2007-4 [101] AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG30 | amended amended deleted | AASB 2009-5 [20] AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG31 | amended deleted | AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG32 | amended amended deleted | AASB 2007-8 [6] AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG33 | amended amended deleted | AASB 2007-4 [101] AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG33A (preceding heading) | added deleted | AASB 2005-4 [13] AASB 2010-7 [52] |
| AG33A-AG33B | added amended deleted | AASB 2005-4 [13] AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG33C-AG33D | deleted | AASB 2010-7 [52] |
| AG34-AG35 | amended deleted | AASB 2009-11 [45] AASB 2010-7 [7, 52] |
| AG36 | deleted amended | AASB 2010-7 [52] AASB 2011-7 [51] |
| AG37 | deleted amended | AASB 2010-7 [52] AASB 2011-7 [51] |
| AG38 | deleted amended | AASB 2010-7 [52] AASB 2011-7 [51] |
| AG39-AG40 | deleted | AASB 2010-7 [52] |
| AG41 | deleted | AASB 2010-7 [52] |
| AG42-AG45 | deleted | AASB 2010-7 [52] |
| AG46 | amended deleted amended | AASB 2007-4 [101] AASB 2010-7 [52] AASB 2011-8 [86] |
| AG47 | deleted | AASB 2010-7 [52] |
| AG48 | deleted amended | AASB 2010-7 [52] AASB 2014-5 [39] |
| AG49 | deleted | AASB 2010-7 [52] |
| AG50 | amended deleted | AASB 2009-11 [46] AASB 2010-7 [7, 52] |
| AG51 | amended amended deleted | Erratum, Feb 2006 AASB 2007-8 [142] AASB 2010-7 [52] |
| AG52 | amended amended deleted amended | AASB 2005-11 [14] AASB 2009-6 [94] AASB 2010-7 [52] AASB 2011-8 [85] |
| AG53 | amended amended deleted | AASB 2007-4 [101] AASB 2009-11 [46] AASB 2010-7 [7, 52] |
| AG54-AG55 | deleted | AASB 2010-7 [52] |
| AG56 | amended deleted | AASB 2009-11 [46] AASB 2010-7 [7, 52] |
| AG57-AG63 | deleted | AASB 2010-7 [52] |
| AG64 (preceding heading) | amended deleted | AASB 2009-11 [47] AASB 2010-7 [7, 52] |
| AG64 | amended amended deleted amended | Erratum, Feb 2006 AASB 2009-11 [47] AASB 2010-7 [7, 52] AASB 2011-8 [86A] |
| AG65 | deleted deleted amended | AASB 2009-11 [47] AASB 2010-7 [7, 52] AASB 2014-1A [39] |
| AG66 | amended deleted deleted | AASB 2005-11 [15] AASB 2009-11 [47] AASB 2010-7 [7, 52] |
| AG67 | amended amended deleted deleted | AASB 2007-8 [143] AASB 2009-6 [95] AASB 2009-11 [47] AASB 2010-7 [7, 52] |
| AG68 | deleted deleted | AASB 2009-11 [47] AASB 2010-7 [7, 52] |
| AG69-AG70 | deleted deleted | AASB 2010-7 [52] AASB 2011-8 [85] |
| AG71 | amended deleted deleted | AASB 2007-8 [6] AASB 2010-7 [52] AASB 2011-8 [85] |
| AG72-AG75 | deleted deleted | AASB 2010-7 [52] AASB 2011-8 [85] |
| AG76 | deleted amended | AASB 2010-7 [52] AASB 2011-8 [85] |
| AG76A | added amended deleted amended | AASB 2004-2 [16] AASB 2009-11 [47] AASB 2010-7 [7, 52] AASB 2011-8 [85] |
| AG77 | amended deleted deleted | Erratum, Feb 2006 AASB 2010-7 [52] AASB 2011-8 [85] |
| AG78 | deleted deleted | AASB 2010-7 [52] AASB 2011-8 [85] |
| AG79 | amended deleted deleted | AASB 2007-4 [101] AASB 2010-7 [52] AASB 2011-8 [85] |
| AG80 (preceding heading) | amended deleted | AASB 2009-11 [48] AASB 2010-7 [7, 52] |
| AG80 | amended deleted amended | AASB 2009-11 [48] AASB 2010-7 [7, 52] AASB 2011-8 [85] |
| AG81 | amended deleted amended | AASB 2009-11 [48] AASB 2010-7 [7, 52] AASB 2011-8 [85] |
| AG82 | amended deleted deleted | AASB 2007-4 [101] AASB 2010-7 [52] AASB 2011-8 [85] |
| AG83 | amended deleted | AASB 2009-11 [49] AASB 2010-7 [7, 52] |
| AG84 (and preceding heading) | amended amended deleted | AASB 2009-11 [49] AASB 2010-7 [7, 53] AASB 2014-7 [54] |
| AG85 | deleted | AASB 2014-7 [54] |
| AG86 | amended amended deleted | AASB 2007-8 [6] AASB 2007-10 [91] AASB 2014-7 [54] |
| AG87 | amended deleted | AASB 2009-12 [18] AASB 2014-7 [54] |
| AG88-AG93 | deleted | AASB 2014-7 [54] |
| AG95 | amended amended | AASB 2009-11 [50] AASB 2010-7 [7, 54] |
| AG96 | amended deleted amended | AASB 2009-11 [50] AASB 2010-7 [7, 54] AASB 2011-8 [85] |
| AG99A-AG99B | renumbered as AG99C-AG99D added | AASB 2005-1 [9] |
| AG99B | amended | AASB 2007-8 [144] |
| AG99BA | added | AASB 2008-8 [6] |
| AG99E-AG99F | added | AASB 2008-8 [7] |
| AG106 | amended | AASB 2007-10 [90] |
| AG110A-AG110B | added | AASB 2008-8 [8] |
| AG113A | added | AASB 2013-4 [7] |
| AG114 | amended amended | AASB 2009-11 [51] AASB 2010-7 [7, 54] |
| AG118 | amended | AASB 2010-7 [54] |
| AG125 | amended | AASB 2007-4 [101] |
| AG129 | amended | AASB 2007-8 [145] |
| AG133 (preceding heading) | added amended amended | AASB 2005-1 [10] AASB 2009-11 [52] AASB 2010-7 [7, 55] |
| AG133 | added | AASB 2005-1 [10] |
General Terminology Amendments
The following amendments are not shown in the above Table of Amendments:
References to ‘income statement’ and ‘balance sheet’ were amended to ‘statement of comprehensive income’ and ‘statement of financial position’ respectively by AASB 2007-8.
References to ‘recognised in equity’ and ‘recognised directly in equity’ were amended to ‘recognised in other comprehensive income’ by AASB 2007-8.
References to ‘separate balance sheet line item’ were amended to ‘separate line item in the statement of financial position’ by AASB 2007-8.
References in the Illustrative Example to ‘statement of comprehensive income’ were amended to ‘profit or loss’ by AASB 2009-6.
COMPARISON WITH IAS 39
AASB 139 and IAS 39
AASB 139 Financial Instruments: Recognition and Measurement as amended incorporates IAS 39 Financial Instruments: Recognition and Measurement as issued and amended by the International Accounting Standards Board (IASB). Paragraphs that have been added to this Standard (and do not appear in the text of IAS 39) are identified with the prefix “Aus”, followed by the number of the preceding IASB paragraph and decimal numbering.
Compliance with IAS 39
Entities that comply with AASB 139 as amended will simultaneously be in compliance with IAS 39 as amended.
ACCOUNTING STANDARD AASB 139
The Australian Accounting Standards Board made Accounting Standard AASB 139 Financial Instruments: Recognition and Measurement under section 334 of the Corporations Act 2001 on 15 July 2004.
This compiled version of AASB 139 applies to annual reporting periods beginning on or after 1 January 2018. It incorporates relevant amendments contained in other AASB Standards made by the AASB and other decisions of the AASB up to and including 17 December 2014 (see Compilation Details).
ACCOUNTING STANDARD AASB 139
FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT
1 [Deleted by the IASB]
Application
Aus1.1 This Standard applies to:
(a) each entity that is required to prepare financial reports in accordance with Part 2M.3 of the Corporations Act and that is a reporting entity;
(b) general purpose financial statements of each other reporting entity; and
(c) financial statements that are, or are held out to be, general purpose financial statements.
Aus1.2 This Standard applies to annual reporting periods beginning on or after 1 January 2005.
[Note: For application dates of paragraphs changed or added by an amending Standard, see Compilation Details.]Aus1.3 This Standard shall not be applied to annual reporting periods beginning before 1 January 2005.
Aus1.4 [Deleted by the AASB]
Aus1.5 Notice of this Standard was published in the Commonwealth of Australia Gazette No S 294, 22 July 2004.
Scope
2 This Standard shall be applied by all entities to all financial instruments within the scope of AASB 9 Financial Instruments if, and to the extent that:
(a) AASB 9 permits the hedge accounting requirements of this Standard to be applied; and
(b) the financial instrument is part of a hedging relationship that qualifies for hedge accounting in accordance with this Standard.
(c)-(j) [deleted by the IASB]
(k) rights and obligations within the scope of AASB 15 Revenue from Contracts with Customers that are financial instruments, except for those that AASB 15 specifies are accounted for in accordance with AASB 9.
2AThe impairment requirements of this Standard shall be applied to those rights that AASB 15 specifies are accounted for in accordance with this Standard for the purposes of recognising impairment losses.
3 [Deleted by the IASB]
4-7 [Deleted by the IASB]
Definitions
8 The terms defined in AASB 13, AASB 9 and AASB 132 are used in this Standard with the meanings specified in Appendix A of AASB 13, Appendix A of AASB 9 and paragraph 11 of AASB 132. AASB 13, AASB 9 and AASB 132 define the following terms:
(a) amortised cost of a financial asset or financial liability;
(b) derecognition;
(c) derivative;
(d) effective interest method;
(e) effective interest rate;
(f) equity instrument;
(g) fair value;
(h) financial asset;
(i) financial instrument; and
(j) financial liability;
and provide guidance on applying those definitions.
9 The following terms are used in this Standard with the meanings specified.
Definitions Relating to Hedge Accounting
A firm commitment is a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
A forecast transaction is an uncommitted but anticipated future transaction.
A hedging instrument is a designated derivative or (for a hedge of the risk of changes in foreign currency exchange rates only) a designated non-derivative financial asset or non-derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item (paragraphs 72-77 and Appendix A paragraphs AG94-AG97 elaborate on the definition of a hedging instrument).
A hedged item is an asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that (a) exposes the entity to risk of changes in fair value or future cash flows and (b) is designated as being hedged (paragraphs 78-84 and Appendix A paragraphs AG98-AG101 elaborate on the definition of hedged items).
Hedge effectiveness is the degree to which changes in fair value or cash flows attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument (see Appendix A paragraphs AG105-AG113).
10-70 [Deleted by the IASB]
Hedging
71 If an entity applies AASB 9 and has not chosen as its accounting policy to continue to apply the hedge accounting requirements of this Standard (see paragraph 7.2.21 of AASB 9), it shall apply the hedge accounting requirements in Chapter 6 of AASB 9. However, for a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities, an entity may, in accordance with paragraph 6.1.3 of AASB 9, apply the hedge accounting requirements in this Standard instead of those in AASB 9. In that case the entity must also apply the specific requirements for fair value hedge accounting for a portfolio hedge of interest rate risk (see paragraphs 81A, 89A and AG114-AG132).
Hedging Instruments
Qualifying Instruments
72 This Standard does not restrict the circumstances in which a derivative may be designated as a hedging instrument provided the conditions in paragraph 88 are met, except for some written options (see Appendix A paragraph AG94). However, a non-derivative financial asset or non-derivative financial liability may be designated as a hedging instrument only for a hedge of a foreign currency risk.
73 For hedge accounting purposes, only instruments that involve a party external to the reporting entity (i.e. external to the group or individual entity that is being reported on) can be designated as hedging instruments. Although individual entities within a consolidated group or divisions within an entity may enter into hedging transactions with other entities within the group or divisions within the entity, any such intragroup transactions are eliminated on consolidation. Therefore, such hedging transactions do not qualify for hedge accounting in the consolidated financial statements of the group. However, they may qualify for hedge accounting in the individual or separate financial statements of individual entities within the group provided that they are external to the individual entity that is being reported on.
Designation of Hedging Instruments
74 There is normally a single fair value measure for a hedging instrument in its entirety, and the factors that cause changes in fair value are co-dependent. Thus, a hedging relationship is designated by an entity for a hedging instrument in its entirety. The only exceptions permitted are:
(a) separating the intrinsic value and time value of an option contract and designating as the hedging instrument only the change in intrinsic value of an option and excluding change in its time value; and
(b) separating the interest element and the spot price of a forward contract.
These exceptions are permitted because the intrinsic value of the option and the premium on the forward can generally be measured separately. A dynamic hedging strategy that assesses both the intrinsic value and time value of an option contract can qualify for hedge accounting.
75 A proportion of the entire hedging instrument, such as 50 per cent of the notional amount, may be designated as the hedging instrument in a hedging relationship. However, a hedging relationship may not be designated for only a portion of the time period during which a hedging instrument remains outstanding.
76 A single hedging instrument may be designated as a hedge of more than one type of risk provided that (a) the risks hedged can be identified clearly; (b) the effectiveness of the hedge can be demonstrated; and (c) it is possible to ensure that there is specific designation of the hedging instrument and different risk positions.
77 Two or more derivatives, or proportions of them (or, in the case of a hedge of currency risk, two or more non-derivatives or proportions of them, or a combination of derivatives and non-derivatives or proportions of them), may be viewed in combination and jointly designated as the hedging instrument, including when the risk(s) arising from some derivatives offset(s) those arising from others. However, an interest rate collar or other derivative instrument that combines a written option and a purchased option does not qualify as a hedging instrument if it is, in effect, a net written option (for which a net premium is received). Similarly, two or more instruments (or proportions of them) may be designated as the hedging instrument only if none of them is a written option or a net written option.
Hedged Items
Qualifying Items
78 A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a highly probable forecast transaction or a net investment in a foreign operation. The hedged item can be (a) a single asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation, (b) a group of assets, liabilities, firm commitments, highly probable forecast transactions or net investments in foreign operations with similar risk characteristics or (c) in a portfolio hedge of interest rate risk only, a portion of the portfolio of financial assets or financial liabilities that share the risk being hedged.
79 [Deleted by the IASB]
80 For hedge accounting purposes, only assets, liabilities, firm commitments or highly probable forecast transactions that involve a party external to the entity can be designated as hedged items. It follows that hedge accounting can be applied to transactions between entities in the same group only in the individual or separate financial statements of those entities and not in the consolidated financial statements of the group, except for the consolidated financial statements of an investment entity, as defined in AASB 10, where transactions between an investment entity and its subsidiaries measured at fair value through profit or loss will not be eliminated in the consolidated financial statements. As an exception, the foreign currency risk of an intragroup monetary item (e.g. a payable/receivable between two subsidiaries) may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation in accordance with AASB 121 The Effects of Changes in Foreign Exchange Rates. In accordance with AASB 121, foreign exchange rate gains and losses on intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss.
Designation of Financial Items as Hedged Items
81 If the hedged item is a financial asset or financial liability, it may be a hedged item with respect to the risks associated with only a portion of its cash flows or fair value (such as one or more selected contractual cash flows or portions of them or a percentage of the fair value) provided that effectiveness can be measured. For example, an identifiable and separately measurable portion of the interest rate exposure of an interest-bearing asset or interest-bearing liability may be designated as the hedged risk (such as a risk-free interest rate or benchmark interest rate component of the total interest rate exposure of a hedged financial instrument).
81A In a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only in such a hedge), the portion hedged may be designated in terms of an amount of a currency (e.g. an amount of dollars, euro, pounds or rand) rather than as individual assets (or liabilities). Although the portfolio may, for risk management purposes, include assets and liabilities, the amount designated is an amount of assets or an amount of liabilities. Designation of a net amount including assets and liabilities is not permitted. The entity may hedge a portion of the interest rate risk associated with this designated amount. For example, in the case of a hedge of a portfolio containing prepayable assets, the entity may hedge the change in fair value that is attributable to a change in the hedged interest rate on the basis of expected, rather than contractual, repricing dates. When the portion hedged is based on expected repricing dates, the effect that changes in the hedged interest rate have on those expected repricing dates shall be included when determining the change in the fair value of the hedged item. Consequently, if a portfolio that contains prepayable items is hedged with a nonprepayable derivative, ineffectiveness arises if the dates on which items in the hedged portfolio are expected to prepay are revised, or actual prepayment dates differ from those expected.
Designation of Non-Financial Items as Hedged Items
82 If the hedged item is a non-financial asset or non-financial liability, it shall be designated as a hedged item (a) for foreign currency risks, or (b) in its entirety for all risks, because of the difficulty of isolating and measuring the appropriate portion of the cash flows or fair value changes attributable to specific risks other than foreign currency risks.
Designation of Groups of Items as Hedged Items
83 Similar assets or similar liabilities shall be aggregated and hedged as a group only if the individual assets or individual liabilities in the group share the risk exposure that is designated as being hedged. Furthermore, the change in fair value attributable to the hedged risk for each individual item in the group shall be expected to be approximately proportional to the overall change in fair value attributable to the hedged risk of the group of items.
84 Because an entity assesses hedge effectiveness by comparing the change in the fair value or cash flow of a hedging instrument (or group of similar hedging instruments) and a hedged item (or group of similar hedged items), comparing a hedging instrument with an overall net position (e.g. the net of all fixed rate assets and fixed rate liabilities with similar maturities), rather than with a specific hedged item, does not qualify for hedge accounting.
Hedge Accounting
85 Hedge accounting recognises the offsetting effects on profit or loss of changes in the fair values of the hedging instrument and the hedged item.
86 Hedging relationships are of three types:
(a) fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm commitment, or an identified portion of such an asset, liability, or firm commitment, that is attributable to a particular risk and could affect profit or loss;
(b) cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction and (ii) could affect profit or loss; and
(c) hedge of a net investment in a foreign operation as defined in AASB 121.
87 A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or as a cash flow hedge.
88 A hedging relationship qualifies for hedge accounting under paragraphs 89-102 if, and only if, all of the following conditions are met.
(a) At the inception of the hedge there is formal designation and documentation of the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge. That documentation shall include identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk.
(b) The hedge is expected to be highly effective (see Appendix A paragraphs AG105-AG113) in achieving offsetting changes in fair value or cash flows attributable to the hedged risk, consistently with the originally documented risk management strategy for that particular hedging relationship.
(c) For cash flow hedges, a forecast transaction that is the subject of the hedge must be highly probable and must present an exposure to variations in cash flows that could ultimately affect profit or loss.
(d) The effectiveness of the hedge can be reliably measured, ie the fair value or cash flows of the hedged item that are attributable to the hedged risk and the fair value of the hedging instrument can be reliably measured.
(e) The hedge is assessed on an ongoing basis and determined actually to have been highly effective throughout the reporting periods for which the hedge was designated.
Fair Value Hedges
89 If a fair value hedge meets the conditions in paragraph 88 during the period, it shall be accounted for as follows:
(a) the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount measured in accordance with AASB 121 (for a non-derivative hedging instrument) shall be recognised in profit or loss; and
(b) the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This applies if the hedged item is otherwise measured at cost. Recognition of the gain or loss attributable to the hedged risk in profit or loss applies if the hedged item is a financial asset measured at fair value through other comprehensive income in accordance with paragraph 4.1.2A of AASB 9.
89A For a fair value hedge of the interest rate exposure of a portion of a portfolio of financial assets or financial liabilities (and only in such a hedge), the requirement in paragraph 89(b) may be met by presenting the gain or loss attributable to the hedged item either:
(a) in a single separate line item within assets, for those repricing time periods for which the hedged item is an asset; or
(b) in a single separate line item within liabilities, for those repricing time periods for which the hedged item is a liability.
The separate line items referred to in (a) and (b) above shall be presented next to financial assets or financial liabilities. Amounts included in these line items shall be removed from the statement of financial position when the assets or liabilities to which they relate are derecognised.
90 If only particular risks attributable to a hedged item are hedged, recognised changes in the fair value of the hedged item unrelated to the hedged risk are recognised as set out in paragraph 5.7.1 of AASB 9.
91 An entity shall discontinue prospectively the hedge accounting specified in paragraph 89 if:
(a) the hedging instrument expires or is sold, terminated or exercised. For this purpose, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if such replacement or rollover is part of the entity’s documented hedging strategy. Additionally, for this purpose there is not an expiration or termination of the hedging instrument if:
(i) as a consequence of laws or regulations or the introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. For this purpose, a clearing counterparty is a central counterparty (sometimes called a ‘clearing organisation’ or ‘clearing agency’) or an entity or entities, for example, a clearing member of a clearing organisation or a client of a clearing member of a clearing organisation, that are acting as counterparty in order to effect clearing by a central counterparty. However, when the parties to the hedging instrument replace their original counterparties with different counterparties this paragraph shall apply only if each of those parties effects clearing with the same central counterparty;
(ii) other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral requirements, rights to offset receivables and payables balances, and charges levied;
(b) the hedge no longer meets the criteria for hedge accounting in paragraph 88; or
(c) the entity revokes the designation.
92 Any adjustment arising from paragraph 89(b) to the carrying amount of a hedged financial instrument for which the effective interest method is used (or, in the case of a portfolio hedge of interest rate risk, to the separate line item in the statement of financial position described in paragraph 89A) shall be amortised to profit or loss. Amortisation may begin as soon as an adjustment exists and shall begin no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. The adjustment is based on a recalculated effective interest rate at the date amortisation begins. However, if, in the case of a fair value hedge of the interest rate exposure of a portfolio of financial assets or financial liabilities (and only in such a hedge), amortising using a recalculated effective interest rate is not practicable, the adjustment shall be amortised using a straight-line method. The adjustment shall be amortised fully by maturity of the financial instrument or, in the case of a portfolio hedge of interest rate risk, by expiry of the relevant repricing time period.
93 When an unrecognised firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognised as an asset or liability with a corresponding gain or loss recognised in profit or loss (see paragraph 89(b)). The changes in the fair value of the hedging instrument are also recognised in profit or loss.
94 When an entity enters into a firm commitment to acquire an asset or assume a liability that is a hedged item in a fair value hedge, the initial carrying amount of the asset or liability that results from the entity meeting the firm commitment is adjusted to include the cumulative change in the fair value of the firm commitment attributable to the hedged risk that was recognised in the statement of financial position.
Cash Flow Hedges
95 If a cash flow hedge meets the conditions in paragraph 88 during the period, it shall be accounted for as follows:
(a) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (see paragraph 88) shall be recognised in other comprehensive income; and
(b) the ineffective portion of the gain or loss on the hedging instrument shall be recognised in profit or loss.
96 More specifically, a cash flow hedge is accounted for as follows:
(a) the separate component of equity associated with the hedged item is adjusted to the lesser of the following (in absolute amounts):
(i) the cumulative gain or loss on the hedging instrument from inception of the hedge; and
(ii) the cumulative change in fair value (present value) of the expected future cash flows on the hedged item from inception of the hedge;
(b) any remaining gain or loss on the hedging instrument or designated component of it (i.e. not an effective hedge) is recognised in profit or loss; and
(c) if an entity’s documented risk management strategy for a particular hedging relationship excludes from the assessment of hedge effectiveness a specific component of the gain or loss or related cash flows on the hedging instrument (see paragraphs 74, 75 and 88(a)), that excluded component of gain or loss is recognised in accordance with paragraph 5.7.1 of AASB 9.
97 If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or a financial liability, the associated gains or losses that were recognised in other comprehensive income in accordance with paragraph 95 shall be reclassified from equity to profit or loss as a reclassification adjustment (see AASB 101 (as revised in 2007)) in the same period or periods during which the hedged forecast cash flows affect profit or loss (such as in the periods that interest income or interest expense is recognised). However, if an entity expects that all or a portion of a loss recognised in other comprehensive income will not be recovered in one or more future periods, it shall reclassify into profit or loss as a reclassification adjustment the amount that is not expected to be recovered.
98 If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or a non-financial liability, or a forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, then the entity shall adopt (a) or (b) below:
(a) it reclassifies the associated gains and losses that were recognised in other comprehensive income in accordance with paragraph 95 to profit or loss as a reclassification adjustment (see AASB 101 (revised 2007)) in the same period or periods during which the asset acquired or liability assumed affects profit or loss (such as in the periods that depreciation expense or cost of sales is recognised). However, if an entity expects that all or a portion of a loss recognised in other comprehensive income will not be recovered in one or more future periods, it shall reclassify from equity to profit or loss as a reclassification adjustment the amount that is not expected to be recovered; or
(b) it removes the associated gains and losses that were recognised in other comprehensive income in accordance with paragraph 95, and includes them in the initial cost or other carrying amount of the asset or liability.
99 An entity shall adopt either (a) or (b) in paragraph 98 as its accounting policy and shall apply it consistently to all hedges to which paragraph 98 relates.
100 For cash flow hedges other than those covered by paragraphs 97 and 98, amounts that had been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment (see AASB 101 (revised 2007)) in the same period or periods during which the hedged forecast cash flows affect profit or loss (for example, when a forecast sale occurs).
101 In any of the following circumstances, an entity shall discontinue prospectively the hedge accounting specified in paragraphs 95-100.
(a) The hedging instrument expires or is sold, terminated or exercised. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see paragraph 95(a)) shall remain separately in equity until the forecast transaction occurs. When the transaction occurs, paragraph 97, 98 or 100 applies. For the purpose of this subparagraph, the replacement or rollover of a hedging instrument into another hedging instrument is not an expiration or termination if such replacement or rollover is part of the entity’s documented hedging strategy. Additionally, for the purpose of this subparagraph there is not an expiration or termination of the hedging instrument if:
(i) as a consequence of laws or regulations or the introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing counterparties replace their original counterparty to become the new counterparty to each of the parties. For this purpose, a clearing counterparty is a central counterparty (sometimes called a ‘clearing organisation’ or ‘clearing agency’) or an entity or entities, for example, a clearing member of a clearing organisation or a client of a clearing member of a clearing organisation, that are acting as counterparty in order to effect clearing by a central counterparty. However, when the parties to the hedging instrument replace their original counterparties with different counterparties this paragraph shall apply only if each of those parties effects clearing with the same central counterparty.
(ii) other changes, if any, to the hedging instrument are limited to those that are necessary to effect such a replacement of the counterparty. Such changes are limited to those that are consistent with the terms that would be expected if the hedging instrument were originally cleared with the clearing counterparty. These changes include changes in the collateral requirements, rights to offset receivables and payables balances, and charges levied.
(b) The hedge no longer meets the criteria for hedge accounting in paragraph 88. In this case, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see paragraph 95(a)) shall remain separately in equity until the forecast transaction occurs. When the transaction occurs, paragraphs 97, 98 or 100 applies.
(c) The forecast transaction is no longer expected to occur, in which case any related cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see paragraph 95(a)) shall be reclassified from equity to profit or loss as a reclassification adjustment. A forecast transaction that is no longer highly probable (see paragraph 88(c)) may still be expected to occur.
(d) The entity revokes the designation. For hedges of a forecast transaction, the cumulative gain or loss on the hedging instrument that has been recognised in other comprehensive income from the period when the hedge was effective (see paragraph 95(a)) shall remain separately in equity until the forecast transaction occurs or is no longer expected to occur. When the transaction occurs, paragraphs 97, 98 or 100 applies. If the transaction is no longer expected to occur, the cumulative gain or loss that had been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment.
Hedges of a Net Investment
102 Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment (see AASB 121), shall be accounted for similarly to cash flow hedges:
(a) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge (see paragraph 88) shall be recognised in other comprehensive income; and
(b) the ineffective portion shall be recognised in profit or loss.
The gain or loss on the hedging instrument relating to the effective portion of the hedge that has been recognised in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment (see AASB 101 (revised 2007)) in accordance with paragraphs 48-49 of AASB 121 on the disposal or partial disposal of the foreign operation.
Effective Date and Transition
103-103C [Deleted by the AASB]
103D [Deleted by the IASB]
103E-103G [Deleted by the AASB]
103H-103J [Deleted by the IASB]
103K AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project, issued in May 2009, amended paragraphs 2(g), 97 and 100. An entity shall apply the amendments to those paragraphs prospectively to all unexpired contracts for annual reporting periods beginning on or after 1 January 2010. Earlier application is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.
103L-103P [Deleted by the IASB]
103Q AASB 2011-8 Amendments to Australian Accounting Standards arising from AASB 13, issued in September 2011, amended paragraphs 9, 13, 28, 47, 88, AG46, AG52, AG64, AG76, AG76A, AG80, AG81 and AG96, added paragraph 43A, and deleted paragraphs 48-49, AG69-AG75, AG77-AG79, and AG82 and their related headings. An entity shall apply those amendments when it applies AASB 13.
103R AASB 2013-5 Amendments to Australian Accounting Standards – Investment Entities, issued in August 2013, amended paragraphs 2 and 80. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2014. Earlier application of AASB 2013-5 is permitted. If an entity applies those amendments earlier it shall also apply all amendments included in AASB 2013-5 at the same time.
103S [Deleted by the IASB]
103U AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) (as amended), AASB 2014-1 Amendments to Australian Accounting Standards and AASB 2014-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2014) amended paragraphs 2, 8, 9, 71, 88–90, 96, AG95, AG114, AG118 and the heading above AG133 and deleted paragraphs 1, 4–7, 10–70, 79, 103B, 103D, 103F, 103H–103J, 103L, 103P, 105–107A, 108E–108F, AG1–AG93 and AG96. Paragraph 103O, added by AASB 2010-7, was deleted by AASB 2014-1. Paragraph 103S, added by AASB 2014-1, was deleted by AASB 2014-7. An entity shall apply those amendments when it applies AASB 9 (December 2014).
104 This Standard shall be applied retrospectively except as specified in paragraph 108. The opening balance of retained earnings for the earliest prior period presented and all other comparative amounts shall be adjusted as if this Standard had always been in use unless restating the information would be impracticable. If restatement is impracticable, the entity shall disclose that fact and indicate the extent to which the information was restated.
105-105D [Deleted by the IASB]
106-107A [Deleted by the AASB]
108 An entity shall not adjust the carrying amount of non-financial assets and non-financial liabilities to exclude gains and losses related to cash flow hedges that were included in the carrying amount before the beginning of the financial year in which this Standard is first applied. At the beginning of the financial period in which this Standard is first applied, any amount recognised outside profit or loss (in other comprehensive income or directly in equity) for a hedge of a firm commitment that under this Standard is accounted for as a fair value hedge shall be reclassified as an asset or liability, except for a hedge of foreign currency risk that continues to be treated as a cash flow hedge.
108A An entity shall apply the last sentence of paragraph 80, and paragraphs AG99A and AG99B, for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity has designated as the hedged item an external forecast transaction that:
(a) is denominated in the functional currency of the entity entering into the transaction;
(b) gives rise to an exposure that will have an effect on consolidated profit or loss (i.e. is denominated in a currency other than the group’s presentation currency); and
(c) would have qualified for hedge accounting had it not been denominated in the functional currency of the entity entering into it;
it may apply hedge accounting in the consolidated financial statements in the period(s) before the date of application of the last sentence of paragraph 80, and paragraphs AG99A and AG99B.
108B An entity need not apply paragraph AG99B to comparative information relating to periods before the date of application of the last sentence of paragraph 80 and paragraph AG99A.
108C Paragraphs 73 and AG8 were amended by AASB 2008-5 Amendments to Australian Accounting Standards arising from the Annual Improvements Project issued in July 2008. Paragraph 80 was amended by AASB 2009-5 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project issued in May 2009. An entity shall apply those amendments for annual reporting periods beginning on or after 1 January 2009. Earlier application of all the amendments is permitted. If an entity applies the amendments for an earlier period it shall disclose that fact.
108D AASB 2013-4 Amendments to Australian Accounting Standards – Novation of Derivatives and Continuation of Hedge Accounting, issued in July 2013, amended paragraphs 91 and 101 and added paragraph AG113A. An entity shall apply those paragraphs for annual reporting periods beginning on or after 1 January 2014. An entity shall apply those amendments retrospectively in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies those amendments for an earlier period it shall disclose that fact.
108E-108F [Deleted by the IASB]
Withdrawal of Other Pronouncements
109-110 [Deleted by the AASB]
APPENDIX A
APPLICATION GUIDANCE
This Appendix is an integral part of AASB 139.
AG1-AG4A [Deleted by the IASB]
Definitions (paragraphs 8 and 9)
AG4B-AG4K [Deleted by the IASB]
Effective Interest Rate
AG5-AG8 [Deleted by the IASB]
AG8A In applying the effective interest method, an entity identifies fees that are an integral part of the effective interest rate of a financial instrument. The description of fees for financial services may not be indicative of the nature and substance of the services provided. Fees that are an integral part of the effective interest rate of a financial instrument are treated as an adjustment to the effective interest rate, unless the financial instrument is measured at fair value, with the change in fair value being recognised in profit or loss. In those cases, the fees are recognised as revenue when the instrument is initially recognised.
AG8B Fees that are an integral part of the effective interest rate of a financial instrument include:
(a) origination fees received by the entity relating to the creation or acquisition of a financial asset. Such fees may include compensation for activities such as evaluating the borrower’s financial condition, evaluating and recording guarantees, collateral and other security arrangements, negotiating the terms of the instrument, preparing and processing documents and closing the transaction. These fees are an integral part of generating an involvement with the resulting financial instrument.
(b) commitment fees received by the entity to originate a loan when the loan commitment is outside the scope of this Standard and it is probable that the entity will enter into a specific lending arrangement. These fees are regarded as compensation for an ongoing involvement with the acquisition of a financial instrument. If the commitment expires without the entity making the loan, the fee is recognised as revenue on expiry.
(c) origination fees received on issuing financial liabilities measured at amortised cost. These fees are an integral part of generating an involvement with a financial liability. An entity distinguishes fees and costs that are an integral part of the effective interest rate for the financial liability from origination fees and transaction costs relating to the right to provide services, such as investment management services.
AG8C Fees that are not an integral part of the effective interest rate of a financial instrument and are accounted for in accordance with AASB 15 include:
(a) fees charged for servicing a loan;
(b) commitment fees to originate a loan when the loan commitment is outside the scope of this Standard and it is unlikely that a specific lending arrangement will be entered into; and
(c) loan syndication fees received by an entity that arranges a loan and retains no part of the loan package for itself (or retains a part at the same effective interest rate for comparable risk as other participants).
AG9-AG93 [Deleted by the IASB]
Hedging (paragraphs 71-102)
Hedging Instruments (paragraphs 72-77)
Qualifying Instruments (paragraphs 72 and 73)
AG94 The potential loss on an option that an entity writes could be significantly greater than the potential gain in value of a related hedged item. In other words, a written option is not effective in reducing the profit or loss exposure of a hedged item. Therefore, a written option does not qualify as a hedging instrument unless it is designated as an offset to a purchased option, including one that is embedded in another financial instrument (e.g. a written call option used to hedge a callable liability). In contrast, a purchased option has potential gains equal to or greater than losses and therefore has the potential to reduce profit or loss exposure from changes in fair values or cash flows. Accordingly, it can qualify as a hedging instrument.
AG95 A financial asset measured at amortised cost may be designated as a hedging instrument in a hedge of foreign currency risk.
AG96 [Deleted by the IASB]
AG97 An entity’s own equity instruments are not financial assets or financial liabilities of the entity and, therefore, cannot be designated as hedging instruments.
Hedged Items (paragraphs 78-84)
Qualifying Items (paragraphs 78-80)
AG98 A firm commitment to acquire a business in a business combination cannot be a hedged item, except for foreign exchange risk, because the other risks being hedged cannot be specifically identified and measured. These other risks are general business risks.
AG99 An equity method investment cannot be a hedged item in a fair value hedge because the equity method recognises in profit or loss the investor’s share of the associate’s profit or loss, rather than changes in the investment’s fair value. For a similar reason, an investment in a consolidated subsidiary cannot be a hedged item in a fair value hedge because consolidation recognises in profit or loss the subsidiary’s profit or loss, rather than changes in the investment’s fair value. A hedge of a net investment in a foreign operation is different because it is a hedge of the foreign currency exposure, not a fair value hedge of the change in the value of the investment.
AG99A Paragraph 80 states that in consolidated financial statements the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in a cash flow hedge, provided the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss. For this purpose an entity can be a parent, subsidiary, associate, joint venture or branch. If the foreign currency risk of a forecast intragroup transaction does not affect consolidated profit or loss, the intragroup transaction cannot qualify as a hedged item. This is usually the case for royalty payments, interest payments or management charges between members of the same group unless there is a related external transaction. However, when the foreign currency risk of a forecast intragroup transaction will affect consolidated profit or loss, the intragroup transaction can qualify as a hedged item. An example is forecast sales or purchases of inventories between members of the same group if there is an onward sale of the inventory to a party external to the group. Similarly, a forecast intragroup sale of plant and equipment from the group entity that manufactured it to a group entity that will use the plant and equipment in its operations may affect consolidated profit or loss. This could occur, for example, because the plant and equipment will be depreciated by the purchasing entity and the amount initially recognised for the plant and equipment may change if the forecast intragroup transaction is denominated in a currency other than the functional currency of the purchasing entity.
AG99B If a hedge of a forecast intragroup transaction qualifies for hedge accounting, any gain or loss that is recognised in other comprehensive income in accordance with paragraph 95(a) shall be reclassified from equity to profit or loss as a reclassification adjustment in the same period or periods during which the foreign currency risk of the hedged transaction affects consolidated profit or loss.
AG99BA An entity can designate all changes in the cash flows or fair value of a hedged item in a hedging relationship. An entity can also designate only changes in the cash flows or fair value of a hedged item above or below a specified price or other variable (a one-sided risk). The intrinsic value of a purchased option hedging instrument (assuming that it has the same principal terms as the designated risk), but not its time value, reflects a one-sided risk in a hedged item. For example, an entity can designate the variability of future cash flow outcomes resulting from a price increase of a forecast commodity purchase. In such a situation, only cash flow losses that result from an increase in the price above the specified level are designated. The hedged risk does not include the time value of a purchased option because the time value is not a component of the forecast transaction that affects profit or loss (paragraph 86(b)).
AG99C If a portion of the cash flows of a financial asset or financial liability is designated as the hedged item, that designated portion must be less than the total cash flows of the asset or liability. For example, in the case of a liability whose effective interest rate is below LIBOR, an entity cannot designate (a) a portion of the liability equal to the principal amount plus interest at LIBOR and (b) a negative residual portion. However, the entity may designate all of the cash flows of the entire financial asset or financial liability as the hedged item and hedge them for only one particular risk (e.g. only for changes that are attributable to changes in LIBOR). For example, in the case of a financial liability whose effective interest rate is 100 basis points below LIBOR, an entity can designate as the hedged item the entire liability (i.e. principal plus interest at LIBOR minus 100 basis points) and hedge the change in the fair value or cash flows of that entire liability that is attributable to changes in LIBOR. The entity may also choose a hedge ratio of other than one to one in order to improve the effectiveness of the hedge as described in paragraph AG100.
AG99D In addition, if a fixed rate financial instrument is hedged some time after its origination and interest rates have changed in the meantime, the entity can designate a portion equal to a benchmark rate that is higher than the contractual rate paid on the item. The entity can do so provided that the benchmark rate is less than the effective interest rate calculated on the assumption that the entity had purchased the instrument on the day it first designates the hedged item. For example, assume an entity originates a fixed rate financial asset of CU100 that has an effective interest rate of 6 per cent at a time when LIBOR is 4 per cent. It begins to hedge that asset some time later when LIBOR has increased to 8 per cent and the fair value of the asset has decreased to CU90. The entity calculates that if it had purchased the asset on the date it first designates it as the hedged item for its then fair value of CU90, the effective yield would have been 9.5 per cent. Because LIBOR is less than this effective yield, the entity can designate a LIBOR portion of 8 per cent that consists partly of the contractual interest cash flows and partly of the difference between the current fair value (i.e. CU90) and the amount repayable on maturity (i.e. CU100).
AG99E Paragraph 81 permits an entity to designate something other than the entire fair value change or cash flow variability of a financial instrument. For example:
(a) all of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to some (but not all) risks; or
(b) some (but not all) of the cash flows of a financial instrument may be designated for cash flow or fair value changes attributable to all or only some risks (i.e. a ‘portion’ of the cash flows of the financial instrument may be designated for changes attributable to all or only some risks).
AG99F To be eligible for hedge accounting, the designated risks and portions must be separately identifiable components of the financial instrument, and changes in the cash flows or fair value of the entire financial instrument arising from changes in the designated risks and portions must be reliably measurable. For example:
(a) for a fixed rate financial instrument hedged for changes in fair value attributable to changes in a risk-free or benchmark interest rate, the risk-free or benchmark rate is normally regarded as both a separately identifiable component of the financial instrument and reliably measurable.
(b) inflation is not separately identifiable and reliably measurable and cannot be designated as a risk or a portion of a financial instrument unless the requirements in (c) are met.
(c) a contractually specified inflation portion of the cash flows of a recognised inflation-linked bond (assuming there is no requirement to account for an embedded derivative separately) is separately identifiable and reliably measurable as long as other cash flows of the instrument are not affected by the inflation portion.
Designation of Non-Financial Items as Hedged Items (paragraph 82)
AG100 Changes in the price of an ingredient or component of a non-financial asset or non-financial liability generally do not have a predictable, separately measurable effect on the price of the item that is comparable to the effect of, say, a change in market interest rates or the price of a bond. Thus, a non-financial asset or non-financial liability is a hedged item only in its entirety or for exchange risk. If there is a difference between the terms of the hedging instrument and the hedged item (such as for a hedge of the forecast purchase of Brazilian coffee using a forward contract to purchase Colombian coffee on otherwise similar terms), the hedging relationship nonetheless can qualify as a hedge relationship provided all the conditions in paragraph 88 are met, including that the hedge is expected to be highly effective. For this purpose, the amount of the hedging instrument may be greater or less than that of the hedged item if this improves the effectiveness of the hedging relationship. For example, a regression analysis could be performed to establish a statistical relationship between the hedged item (e.g. a transaction in Brazilian coffee) and the hedging instrument (e.g. a transaction in Colombian coffee). If there is a valid statistical relationship between the two variables (i.e. between the unit prices of Brazilian coffee and Colombian coffee), the slope of the regression line can be used to establish the hedge ratio that will maximise expected effectiveness. For example, if the slope of the regression line is 1.02, a hedge ratio based on 0.98 quantities of hedged items to 1.00 quantities of the hedging instrument maximises expected effectiveness. However, the hedging relationship may result in ineffectiveness that is recognised in profit or loss during the term of the hedging relationship.
Designation of Groups of Items as Hedged Items (paragraphs 83 and 84)
AG101 A hedge of an overall net position (e.g. the net of all fixed rate assets and fixed rate liabilities with similar maturities), rather than of a specific hedged item, does not qualify for hedge accounting. However, almost the same effect on profit or loss of hedge accounting for this type of hedging relationship can be achieved by designating as the hedged item part of the underlying items. For example, if a bank has CU100 of assets and CU90 of liabilities with risks and terms of a similar nature and hedges the net CU10 exposure, it can designate as the hedged item CU10 of those assets. This designation can be used if such assets and liabilities are fixed rate instruments, in which case it is a fair value hedge, or if they are variable rate instruments, in which case it is a cash flow hedge. Similarly, if an entity has a firm commitment to make a purchase in a foreign currency of CU100 and a firm commitment to make a sale in the foreign currency of CU90, it can hedge the net amount of CU10 by acquiring a derivative and designating it as a hedging instrument associated with CU10 of the firm purchase commitment of CU100.
Hedge Accounting (paragraphs 85-102)
AG102 An example of a fair value hedge is a hedge of exposure to changes in the fair value of a fixed rate debt instrument as a result of changes in interest rates. Such a hedge could be entered into by the issuer or by the holder.
AG103 An example of a cash flow hedge is use of a swap to change floating rate debt to fixed rate debt (i.e. a hedge of a future transaction where the future cash flows being hedged are the future interest payments).
AG104 A hedge of a firm commitment (e.g. a hedge of the change in fuel price relating to an unrecognised contractual commitment by an electric utility to purchase fuel at a fixed price) is a hedge of an exposure to a change in fair value. Accordingly, such a hedge is a fair value hedge. However, under paragraph 87 a hedge of the foreign currency risk of a firm commitment could alternatively be accounted for as a cash flow hedge.
Assessing Hedge Effectiveness
AG105 A hedge is regarded as highly effective only if both of the following conditions are met.
(a) At the inception of the hedge and in subsequent periods, the hedge is expected to be highly effective in achieving offsetting changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge is designated. Such an expectation can be demonstrated in various ways, including a comparison of past changes in the fair value or cash flows of the hedged item that are attributable to the hedged risk with past changes in the fair value or cash flows of the hedging instrument, or by demonstrating a high statistical correlation between the fair value or cash flows of the hedged item and those of the hedging instrument. The entity may choose a hedge ratio of other than one to one in order to improve the effectiveness of the hedge as described in paragraph AG100.
(b) The actual results of the hedge are within a range of 80-125 per cent. For example, if actual results are such that the loss on the hedging instrument is CU120 and the gain on the cash instruments CU100, offset can be measured by 120 / 100, which is 120 per cent, or by 100 / 120, which is 83 per cent. In this example, assuming the hedge meets the condition in (a), the entity would conclude that the hedge has been highly effective.
AG106 Effectiveness is assessed, at a minimum, at the time an entity prepares its annual or interim financial statements.
AG107 This Standard does not specify a single method for assessing hedge effectiveness. The method an entity adopts for assessing hedge effectiveness depends on its risk management strategy. For example, if the entity’s risk management strategy is to adjust the amount of the hedging instrument periodically to reflect changes in the hedged position, the entity needs to demonstrate that the hedge is expected to be highly effective only for the period until the amount of the hedging instrument is next adjusted. In some cases, an entity adopts different methods for different types of hedges. An entity’s documentation of its hedging strategy includes its procedures for assessing effectiveness. Those procedures state whether the assessment includes all of the gain or loss on a hedging instrument or whether the instrument’s time value is excluded.
AG107A If an entity hedges less than 100 per cent of the exposure on an item, such as 85 per cent, it shall designate the hedged item as being 85 per cent of the exposure and shall measure ineffectiveness based on the change in that designated 85 per cent exposure. However, when hedging the designated 85 per cent exposure, the entity may use a hedge ratio of other than one to one if that improves the expected effectiveness of the hedge, as explained in paragraph AG100.
AG108 If the principal terms of the hedging instrument and of the hedged asset, liability, firm commitment or highly probable forecast transaction are the same, the changes in fair value and cash flows attributable to the risk being hedged may be likely to offset each other fully, both when the hedge is entered into and afterwards. For example, an interest rate swap is likely to be an effective hedge if the notional and principal amounts, term, repricing dates, dates of interest and principal receipts and payments, and basis for measuring interest rates are the same for the hedging instrument and the hedged item. In addition, a hedge of a highly probable forecast purchase of a commodity with a forward contract is likely to be highly effective if:
(a) the forward contract is for the purchase of the same quantity of the same commodity at the same time and location as the hedged forecast purchase;
(b) the fair value of the forward contract at inception is zero; and
(c) either the change in the discount or premium on the forward contract is excluded from the assessment of effectiveness and recognised in profit or loss or the change in expected cash flows on the highly probable forecast transaction is based on the forward price for the commodity.
AG109 Sometimes the hedging instrument offsets only part of the hedged risk. For example, a hedge would not be fully effective if the hedging instrument and hedged item are denominated in different currencies that do not move in tandem. Also, a hedge of interest rate risk using a derivative would not be fully effective if part of the change in the fair value of the derivative is attributable to the counterparty’s credit risk.
(b) using the following approximation. The entity:
(i) calculates the percentage of the assets (or liabilities) in each repricing time period that was hedged, on the basis of the estimated repricing dates at the last date it tested effectiveness;
(ii) applies this percentage to its revised estimate of the amount in that repricing time period to calculate the amount of the hedged item based on its revised estimate;
(iii) calculates the change in the fair value of its revised estimate of the hedged item that is attributable to the hedged risk and presents it as set out in paragraph AG114(g);
(iv) recognises ineffectiveness equal to the difference between the amount determined in (iii) and the change in the fair value of the hedging instrument (see paragraph AG114(h)).
AG127 When measuring effectiveness, the entity distinguishes revisions to the estimated repricing dates of existing assets (or liabilities) from the origination of new assets (or liabilities), with only the former giving rise to ineffectiveness. All revisions to estimated repricing dates (other than those excluded in accordance with paragraph AG121), including any reallocation of existing items between time periods, are included when revising the estimated amount in a time period in accordance with paragraph AG126(b)(ii) and hence when measuring effectiveness. Once ineffectiveness has been recognised as set out above, the entity establishes a new estimate of the total assets (or liabilities) in each repricing time period, including new assets (or liabilities) that have been originated since it last tested effectiveness, and designates a new amount as the hedged item and a new percentage as the hedged percentage. The procedures set out in paragraph AG126(b) are then repeated at the next date it tests effectiveness.
AG128 Items that were originally scheduled into a repricing time period may be derecognised because of earlier than expected prepayment or writeoffs caused by impairment or sale. When this occurs, the amount of change in fair value included in the separate line item referred to in paragraph AG114(g) that relates to the derecognised item shall be removed from the statement of financial position, and included in the gain or loss that arises on derecognition of the item. For this purpose, it is necessary to know the repricing time period(s) into which the derecognised item was scheduled, because this determines the repricing time period(s) from which to remove it and hence the amount to remove from the separate line item referred to in paragraph AG114(g). When an item is derecognised, if it can be determined in which time period it was included, it is removed from that time period. If not, it is removed from the earliest time period if the derecognition resulted from higher than expected prepayments, or allocated to all time periods containing the derecognised item on a systematic and rational basis if the item was sold or became impaired.
AG129 In addition, any amount relating to a particular time period that has not been derecognised when the time period expires is recognised in profit or loss at that time (see paragraph 89A). For example, assume an entity schedules items into three repricing time periods. At the previous redesignation, the change in fair value reported in the single line item in the statement of financial position was an asset of CU25. That amount represents amounts attributable to periods 1, 2 and 3 of CU7, CU8 and CU10, respectively. At the next redesignation, the assets attributable to period 1 have been either realised or rescheduled into other periods. Therefore, CU7 is derecognised from the statement of financial position and recognised in profit or loss. CU8 and CU10 are now attributable to periods 1 and 2, respectively. These remaining periods are then adjusted, as necessary, for changes in fair value as described in paragraph AG114(g).
AG130 As an illustration of the requirements of the previous two paragraphs, assume that an entity scheduled assets by allocating a percentage of the portfolio into each repricing time period. Assume also that it scheduled CU100 into each of the first two time periods. When the first repricing time period expires, CU110 of assets are derecognised because of expected and unexpected repayments. In this case, all of the amount contained in the separate line item referred to in paragraph AG114(g) that relates to the first time period is removed from the statement of financial position, plus 10 per cent of the amount that relates to the second time period.
AG131 If the hedged amount for a repricing time period is reduced without the related assets (or liabilities) being derecognised, the amount included in the separate line item referred to in paragraph AG114(g) that relates to the reduction shall be amortised in accordance with paragraph 92.
AG132 An entity may wish to apply the approach set out in paragraphs AG114-AG131 to a portfolio hedge that had previously been accounted for as a cash flow hedge in accordance with AASB 139. Such an entity would revoke the previous designation of a cash flow hedge in accordance with paragraph 101(d), and apply the requirements set out in that paragraph. It would also redesignate the hedge as a fair value hedge and apply the approach set out in paragraphs AG114-AG131 prospectively to subsequent reporting periods.
Transition (paragraphs 103-108C)
AG133 An entity may have designated a forecast intragroup transaction as a hedged item at the start of an annual period beginning on or after 1 January 2005 (or, for the purpose of restating comparative information the start of an earlier comparative period) in a hedge that would qualify for hedge accounting in accordance with this Standard (as amended by the last sentence of paragraph 80). Such an entity may use that designation to apply hedge accounting in consolidated financial statements from the start of the annual period beginning on or after 1 January 2005 (or the start of the earlier comparative period). Such an entity shall also apply paragraphs AG99A and AG99B from the start of the annual period beginning on or after 1 January 2005. However, in accordance with paragraph 108B, it need not apply paragraph AG99B to comparative information for earlier periods.
ILLUSTRATIVE EXAMPLE
This example accompanies, but is not part of, AASB 139.
Facts
IE1 On 1 January 20x1, Entity A identifies a portfolio comprising assets and liabilities whose interest rate risk it wishes to hedge. The liabilities include demandable deposit liabilities that the depositor may withdraw at any time without notice. For risk management purposes, the entity views all of the items in the portfolio as fixed rate items.
IE2 For risk management purposes, Entity A analyses the assets and liabilities in the portfolio into repricing time periods based on expected repricing dates. The entity uses monthly time periods and schedules items for the next five years (i.e. it has 60 separate monthly time periods).1 The assets in the portfolio are prepayable assets that Entity A allocates into time periods based on the expected prepayment dates, by allocating a percentage of all of the assets, rather than individual items, into each time period. The portfolio also includes demandable liabilities that the entity expects, on a portfolio basis, to repay between one month and five years and, for risk management purposes, are scheduled into time periods on this basis. On the basis of this analysis, Entity A decides what amount it wishes to hedge in each time period.
1 In this Example principal cash flows have been scheduled into time periods but the related interest cash flows have been included when calculating the change in the fair value of the hedged item. Other methods of scheduling assets and liabilities are also possible. Also, in this Example, monthly repricing time periods have been used. An entity may choose narrower or wider time periods.
IE3 This example deals only with the repricing time period expiring in three months’ time, that is the time period maturing on 31 March 20x1 (a similar procedure would be applied for each of the other 59 time periods). Entity A has scheduled assets of CU100 million and liabilities of CU80 million into this time period. All of the liabilities are repayable on demand.
IE4 Entity A decides, for risk management purposes, to hedge the net position of CU20 million and accordingly enters into an interest rate swap2 on 1 January 20x1 to pay a fixed rate and receive LIBOR, with a notional principal amount of CU20 million and a fixed life of three months.
2 This Example uses a swap as the hedging instrument. An entity may use forward rate agreements or other derivatives as hedging instruments.
IE5 This Example makes the following simplifying assumptions:
(a) the coupon on the fixed leg of the swap is equal to the fixed coupon on the asset;
(b) the coupon on the fixed leg of the swap becomes payable on the same dates as the interest payments on the asset; and
(c) the interest on the variable leg of the swap is the overnight LIBOR rate. As a result, the entire fair value change of the swap arises from the fixed leg only, because the variable leg is not exposed to changes in fair value due to changes in interest rates.
In cases when these simplifying assumptions do not hold, greater ineffectiveness will arise.
(The ineffectiveness arising from (a) could be eliminated by designating as the hedged item a portion of the cash flows on the asset that are equivalent to the fixed leg of the swap.)
IE6 It is also assumed that Entity A tests effectiveness on a monthly basis.
IE7 The fair value of an equivalent non-prepayable asset of CU20 million, ignoring changes in value that are not attributable to interest rate movements, at various times during the period of the hedge is as follows.
| 1 Jan | 31 Jan | 1 Feb | 28 Feb | 31 Mar 20x1 | |
| Fair value (asset) (CU) |
|
|
|
|
|
IE8 The fair value of the swap at various times during the period of the hedge is as follows.
| 1 Jan 20x1 | 31 Jan 20x1 | 1 Feb 20x1 | 28 Feb 20x1 | 31 Mar 20x1 | |
| Fair value (liability) (CU) | Nil | (47,408) | (47,408) | (23,795) | Nil |
Accounting Treatment
IE9 On 1 January 20x1, Entity A designates as the hedged item an amount of CU20 million of assets in the three-month time period. It designates as the hedged risk the change in the value of the hedged item (i.e. the CU20 million of assets) that is attributable to changes in LIBOR. It also complies with the other designation requirements set out in paragraphs 88(d) and AG119 of the Standard.
IE10 Entity A designates as the hedging instrument the interest rate swap described in paragraph IE4.
End of month 1 (31 January 20x1)
IE11 On 31 January 20x1 (at the end of month 1) when Entity A tests effectiveness, LIBOR has decreased. Based on historical prepayment experience, Entity A estimates that, as a consequence, prepayments will occur faster than previously estimated. As a result it re-estimates the amount of assets scheduled into this time period (excluding new assets originated during the month) as CU96 million.
IE12 The fair value of the designated interest rate swap with a notional principal of CU20 million is (CU47,408)3 (the swap is a liability).
3 See paragraph IE8.
IE13 Entity A computes the change in the fair value of the hedged item, taking into account the change in estimated prepayments, as follows.
(a) First, it calculates the percentage of the initial estimate of the assets in the time period that was hedged. This is 20 per cent (CU20 million ÷ CU100 million).
(b) Second, it applies this percentage (20 per cent) to its revised estimate of the amount in that time period (CU96 million) to calculate the amount that is the hedged item based on its revised estimate. This is CU19.2 million.
(c) Third, it calculates the change in the fair value of this revised estimate of the hedged item (CU19.2 million) that is attributable to changes in LIBOR. This is CU45,511 (CU47,4084 × (CU19.2 million ÷ CU20 million)).
4 That is, CU20,047,408 – CU20,000,000. See paragraph IE7.
IE14 Entity A makes the following accounting entries relating to this time period:
Dr Cash CU172,097
Cr Profit or loss (interest income)5 CU172,097
5 This Example does not show how amounts of interest income and interest expense are calculated.
To recognise the interest received on the hedged amount (CU19.2 million).
Dr Profit or loss (interest expense) CU179,268
Cr Profit or loss (interest income) CU179,268
Cr Cash Nil
To recognise the interest received and paid on the swap designated as the hedging instrument.
Dr Profit or loss (loss) CU47,408
Cr Derivative liability CU47,408
To recognise the change in the fair value of the swap.
Dr Separate line item in the
statement of financial position CU45,511Cr Profit or loss (gain) CU45,511
To recognise the change in the fair value of the hedged amount.
IE15 The net result on profit or loss (excluding interest income and interest expense) is to recognise a loss of (CU1,897). This represents ineffectiveness in the hedging relationship that arises from the change in estimated prepayment dates.
Beginning of month 2
IE16 On 1 February 20x1 Entity A sells a proportion of the assets in the various time periods. Entity A calculates that it has sold 8⅓ per cent of the entire portfolio of assets. Because the assets were allocated into time periods by allocating a percentage of the assets (rather than individual assets) into each time period, Entity A determines that it cannot ascertain into which specific time periods the sold assets were scheduled. Hence it uses a systematic and rational basis of allocation. Based on the fact that it sold a representative selection of the assets in the portfolio, Entity A allocates the sale proportionately over all time periods.
IE17 On this basis, Entity A computes that it has sold 8⅓ per cent of the assets allocated to the three month time period, that is CU8 million (8⅓ per cent of CU96 million). The proceeds received are CU8,018,400, equal to the fair value of the assets.6 On derecognition of the assets, Entity A also removes from the separate line item in the statement of financial position an amount that represents the change in the fair value of the hedged assets that it has now sold. This is 8⅓ per cent of the total line item balance of CU45,511, that is CU3,793.
6 The amount realised on sale of the asset is the fair value of a prepayable asset, which is less than the fair value of the equivalent non-prepayable asset shown in paragraph IE7.
IE18 Entity A makes the following accounting entries to recognise the sale of the asset and the removal of part of the balance in the separate line item in the statement of financial position.
Dr Cash CU8,018,400
Cr Asset CU8,000,000
Cr Separate line item in the
statement of financial position CU3,793Cr Profit or loss (gain) CU14,607
To recognise the sale of the asset at fair value and to recognise a gain on sale.
Because the change in the amount of the assets is not attributable to a change in the hedged interest rate no ineffectiveness arises.
IE19 Entity A now has CU88 million of assets and CU80 million of liabilities in this time period. Hence the net amount Entity A wants to hedge is now CU8 million and, accordingly, it designates CU8 million as the hedged amount.
IE20 Entity A decides to adjust the hedging instrument by designating only a proportion of the original swap as the hedging instrument. Accordingly, it designates as the hedging instrument CU8 million or 40 per cent of the notional amount of the original swap with a remaining life of two months and a fair value of CU18,963.7 It also complies with the other designation requirements in paragraphs 88(a) and AG119 of the Standard. The CU12 million of the notional amount of the swap that is no longer designated as the hedging instrument is either classified as held for trading with changes in fair value recognised in profit or loss, or is designated as the hedging instrument in a different hedge.8
7 CU47,408 × 40 per cent.
8 The entity could instead enter into an offsetting swap with a notional principal of CU12 million to adjust its position and designate as the hedging instrument all CU20 million of the existing swap and all CU12 million of the new offsetting swap.
IE21 As at 1 February 20x1 and after accounting for the sale of assets, the separate line item in the statement of financial position is CU41,718 (CU45,511 – CU3,793), which represents the cumulative change in fair value of CU17.6 million9 of assets. However, as at 1 February 20x1, Entity A is hedging only CU8 million of assets that have a cumulative change in fair value of CU18,963.10 The remaining separate line item in the statement of financial position of CU22,75511 relates to an amount of assets that Entity A still holds but is no longer hedging. Accordingly Entity A amortises this amount over the remaining life of the time period, that is it amortises CU22,755 over two months.
9 CU19.2 million – (8⅓ % × CU19.2 million).
10 CU41,718 × (CU8million ÷ CU17.6 million).
11 CU41,718 – CU18,963.
IE22 Entity A determines that it is not practicable to use a method of amortisation based on a recalculated effective yield and hence uses a straight-line method.
End of month 2 (28 February 20x1)
IE23 On 28 February 20x1 when Entity A next tests effectiveness, LIBOR is unchanged. Entity A does not revise its prepayment expectations. The fair value of the designated interest rate swap with a notional principal of CU8 million is (CU9,518)12 (the swap is a liability). Also, Entity A calculates the fair value of the CU8 million of the hedged assets as at 28 February 20x1 as CU8,009,518.13
12 CU23,795 [see paragraph IE8] × [CU8 million ÷ CU20 million).
13 CU20,023,795 [see paragraph IE7] × (CU8 million ÷ CU20 million).
IE24 Entity A makes the following accounting entries relating to the hedge in this time period:
Dr Cash CU71,707
Cr Profit or loss (interest income) CU71,707
To recognise the interest received on the hedged amount (CU8 million).
Dr Profit or loss (interest expense) CU71,707
Cr Profit or loss (interest income) CU62,115
Cr Cash CU9,592
To recognise the interest received and paid on the portion of the swap designated as the hedging instrument (CU8 million).
Dr Derivative liability CU9,445
Cr Profit or loss (gain) CU9,445
To recognise the change in the fair value of the portion of the swap designated as the hedging instrument (CU8 million) (CU9,518 – CU18,963)
Dr Profit or loss (loss) CU9,445
Cr Separate line item in the
statement of financial position CU9,445To recognise the change in the fair value of the hedged amount (CU8,009,518 – CU8,018,963).
IE25 The net effect on profit or loss (excluding interest income and interest expense) is nil reflecting that the hedge is fully effective.
IE26 Entity A makes the following accounting entry to amortise the line item balance for this time period:
Dr Profit or loss (loss) CU11,378
Cr Separate line item in the
statement of financial position CU11,3781414 CU22,755 ÷ 2.
To recognise the amortisation charge for the period.
End of month 3
IE27 During the third month there is no further change in the amount of assets or liabilities in the three-month time period. On 31 March 20x1 the assets and the swap mature and all balances are recognised in profit or loss.
IE28 Entity A makes the following accounting entries relating to this time period:
Dr Cash CU8,071,707
Cr Asset (statement of financial position) CU8,000,000
Cr Profit or loss (interest income) CU71,707
To recognise the interest and cash received on maturity of the hedged amount (CU8 million).
Dr Profit or loss (interest expense) CU71,707
Cr Profit or loss (interest income) CU62,115
Cr Cash CU9,592
To recognise the interest received and paid on the portion of the swap designated as the hedging instrument (CU8 million).
Dr Derivative liability CU9,518
Cr Profit or loss (gain) CU9,518
To recognise the expiry of the portion of the swap designated as the hedging instrument (CU8 million).
Dr Profit or loss (loss) CU9,518
Cr Separate line item in the
statement of financial position CU9,518To remove the remaining line item balance on expiry of the time period.
IE29 The net effect on profit or loss (excluding interest income and interest expense) is nil reflecting that the hedge is fully effective.
IE30 Entity A makes the following accounting entry to amortise the line item balance for this time period:
Dr Profit or loss (loss) CU11,377
Cr Separate line item in the
statement of financial position CU11,3771515 CU22,755 ÷ 2.
To recognise the amortisation charge for the period.
Summary
IE31 The tables below summarise:
(a) changes in the separate line item in the statement of financial position;
(b) the fair value of the derivative;
(c) the profit or loss effect of the hedge for the entire three-month period of the hedge; and
(d) interest income and interest expense relating to the amount designated as hedged.
| Description | 1 Jan 20x1 | 31 Jan 20x1 | 1 Feb 20x1 | 28 Feb 20x1 | 31 Mar 20x1 | ||||||||||
| CU | CU | CU | CU | CU | |||||||||||
| Amount of asset hedged | 20 million | 19.2 million | 8 million | 8 million | 8 million | ||||||||||
| (a) Changes in the separate line item in the statement of financial position | |||||||||||||||
| Brought forward: | |||||||||||||||
| Balance to be amortised | Nil | Nil | Nil | 22,755 | 11,377 | ||||||||||
| Remaining balance | Nil | Nil | 45,511 | 18,963 | 9,518 | ||||||||||
| Less: Adjustment on sale of asset | Nil | Nil | (3,793) | Nil | Nil | ||||||||||
| Adjustment for change in fair value of the hedged asset | Nil | 45,511 | Nil | (9,445) | (9,518) | ||||||||||
| Amortisation | Nil | Nil | Nil | (11,378) | (11,377) | ||||||||||
| Carried forward: | |||||||||||||||
| Balance to be amortised | Nil | Nil | 22,755 | 11,377 | Nil | ||||||||||
Remaining balance | Nil | 45,511 | 18,963 | 9,518 | Nil | ||||||||||
(b) The fair value of the derivative | |||||||||||||||
| 1 Jan 20x1 | 31 Jan 20x1 | 1 Feb 20x1 | 28 Feb 20x1 | 31 Mar 20x1 | |||||||||||
| CU20,000,000 | Nil | 47,408 | - | - | - | ||||||||||
| CU12,000,000 | Nil | - | 28,445 | No longer designated as the hedging instrument. | |||||||||||
| CU8,000,000 | Nil | - | 18,963 | 9,518 | Nil | ||||||||||
Total | Nil | 47,408 | 47,408 | 9,518 | Nil | ||||||||||
| (c) Profit or loss effect of the hedge | |||||||||||||||
| 1 Jan 20x1 | 31 Jan 20x1 | 1 Feb 20x1 | 28 Feb 20x1 | 31 Mar 20x1 | |||||||||||
| Change in line item: asset | Nil | 45,511 | N/A | (9,445) | (9,518) | ||||||||||
| Change in derivative fair value | Nil | (47,408) | N/A | 9,445 | 9,518 | ||||||||||
Net effect | Nil | (1,897) | N/A | Nil | Nil | ||||||||||
Amortisation | Nil | Nil | N/A | (11,378) | (11,377) | ||||||||||
| In addition, there is a gain on sale of assets of CU14,607 at 1 February 20x1. | |||||||||||||||
(d) Interest income and interest expense relating to the amount designated as hedged | |||||
| Profit or loss recognised for the amount hedged | 1 Jan 20x1 | 31 Jan 20x1 | 1 Feb 20x1 | 28 Feb 20x1 | 31 Mar 20x1 |
| Interest income | |||||
| – on the asset | Nil | 172,097 | N/A | 71,707 | 71,707 |
| – on the swap | Nil | 179,268 | N/A | 62,115 | 62,115 |
| Interest expense | |||||
| – on the swap | Nil | (179,268) | N/A | (71,707) | (71,707) |
DELETED IAS 39 TEXT
Deleted IAS 39 text is not part of AASB 139.
Paragraph 103
An entity shall apply this Standard (including the amendments issued in March 2004) for annual periods beginning on or after 1 January 2005. Earlier application is permitted. An entity shall not apply this Standard (including the amendments issued in March 2004) for annual periods beginning before 1 January 2005 unless it also applies IAS 32 (issued December 2003). If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.
Paragraph 103A
An entity shall apply the amendment in paragraph 2(j) for annual periods beginning on or after 1 January 2006. If an entity applies IFRIC 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds for an earlier period, this amendment shall be applied for that earlier period.
Paragraph 103B
Financial Guarantee Contracts (Amendments to IAS 39 and IFRS 4), issued in August 2005, amended paragraphs 2(e) and (h), 4 and AG4, added paragraph AG4A, added a new definition of financial guarantee contracts and deleted paragraph 3. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity applies these changes for an earlier period, it shall disclose that fact and apply the related amendments to IAS 322 and IFRS 4 at the same time.
2 When an entity applies IFRS 7, the reference to IAS 32 is replaced by a reference to IFRS 7.
Paragraph 103C
IAS 1 (as revised in 2007) amended the terminology used throughout IFRSs. In addition it amended paragraphs 95(a), 97, 98, 100, 102, 108 and AG99B. An entity shall apply those amendments for annual periods beginning on or after 1 January 2009. If an entity applies IAS 1 (revised 2007) for an earlier period, the amendments shall be applied for that earlier period.
Paragraph 103E
IAS 27 (as amended in 2008) amended paragraph 102. An entity shall apply that amendment for annual periods beginning on or after 1 July 2009. If an entity applies IAS 27 (amended 2008) for an earlier period, the amendment shall be applied for that earlier period.
Paragraph 103F
An entity shall apply the amendment in paragraph 2 for annual periods beginning on or after 1 January 2009. If an entity applies Puttable Financial Instruments and Obligations Arising on Liquidation (Amendments to IAS 32 and IAS 1), issued in February 2008, for an earlier period, the amendment in paragraph 2 shall be applied for that earlier period.
Paragraph 103G
An entity shall apply paragraphs AG99BA, AG99E, AG99F, AG110A and AG110B retrospectively for annual periods beginning on or after 1 July 2009, in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Earlier application is permitted. If an entity applies Eligible Hedged Items (Amendment to IAS 39) for periods beginning before 1 July 2009, it shall disclose that fact.
Paragraph 106
Except as permitted by paragraph 107, an entity shall apply the derecognition requirements in paragraphs 15-37 and Appendix A paragraphs AG36-AG52 prospectively. Accordingly, if an entity derecognised financial assets under IAS 39 (revised 2000) as a result of a transaction that occurred before 1 January 2004 and those assets would not have been derecognised under this Standard, it shall not recognise those assets.
Paragraph 107
Notwithstanding paragraph 106, an entity may apply the derecognition requirements in paragraphs 15-37 and Appendix A paragraphs AG36-AG52 retrospectively from a date of the entity’s choosing, provided that the information needed to apply IAS 39 to assets and liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.
Paragraph 107A
Notwithstanding paragraph 104, an entity may apply the requirements in the last sentence of paragraph AG76, and paragraph AG76A, in either of the following ways:
(a) prospectively to transactions entered into after 25 October 2002; or
(b) prospectively to transactions entered into after 1 January 2004.
Paragraph 109
This Standard supersedes IAS 39 Financial Instruments: Recognition and Measurement revised in October 2000.
Paragraph 110
This Standard and the accompanying Implementation Guidance supersede the Implementation Guidance issued by the IAS 39 Implementation Guidance Committee, established by the former IASC.
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