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Following a recent series of meetings held by the International Accounting Standards Board (IASB) on hedge accounting, Jacqui Drew, senior solution consultant at Reval, said the board failed to provide any clear indication of when the new rules would be finalised. But she stressed that the amendments brought by the organisation to the 'hypothetical derivatives' concept within the new international accounting standards for financial instruments, IFRS 9, could be positive to many but will come as a cost to all parties using cross-currency swaps as hedging tools, including pension funds.
Among those methods come so-called hypothetical derivatives, which aim at comparing the change in the fair value or cash flows of the hedging instrument with the change in the fair value or cash flows of the hypothetical derivative. In revising the hedge accounting standards, the IASB argued that, for hedges of foreign currency risk using cross-currency swaps, the mirroring valuation used with hypothetical derivatives is achieved by including an FX basis spread in the hedged item.
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