The term "hedging" describes the securing of an unsettled position by setting up an offsetting position. "Hedge accounting" is the term used when opposing value developments for a hedged item subject to a risk and a hedging instrument are offset in accounting practice. The aim of hedge accounting is to eliminate the net influence on the profit and loss account. Comprehensive regulations on hedge accounting are required due to the valuation concept in IAS 39 and IFRS 9, which values some financial instruments at fair value and some at amortised cost, and also due to the different effects on profit and loss. Some sections of IAS 39 were revised and extended in IFRS 9.
While the general rules for valuation call for hedging derivatives to be recognised at fair value and for value adjustments to be captured as directly affecting net income, changes in fair value – in so far as they lead to a book value that lies above the cost of purchase – are to be recognised as not affecting net income. If there were no accounting regulations, hedging relationships would lead to uneven P&L effects in this case. Therefore, the aim of the hedge accounting regulations in IAS 39 and IFRS 9 is to capture the value changes of the hedging instruments and the hedged items as largely compensating each other and as affecting or not affecting net income to the same degree.
Different hedge types are permitted under hedge accounting. Jabatix Finance supports the creation of fair value hedges and cash flow hedges.
Safeguards against different types of risk can be implemented for one hedge. Jabatix Finance supports hedging against the following types of risk:
- Interest rate risk
- Currency risk
- The combination of interest rate risk and currency risk