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End of pseudo hedge accounting under FRS 102 and IFRS

Does the recent IFRIC policy statement on hedge accounting mean the end of the use of pseudo hedging under IFRS and FRS 102 accounting, asks Zwi Y Sacho CA(SA), FCA, director of the corporate accounting advisory practice at Chatham Financial Europe

Both UK GAAP and International Financial Reporting Standards (IFRS) require all derivatives to be measured at fair value with changes in fair value being recorded through profit or loss (P&L) with the exception of derivatives that qualify as effective cash flow hedges or net investment hedges.

There is limited guidance in both UK GAAP and IFRS on the presentation of gains or losses on derivatives that are not part of a designated and effective hedging relationship and as such, there is diversity in practice in this area.

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