Ind AS Industry Insights

Hedge accounting under Ind AS 109 – Implications for the energy and resources industry

The new hedge accounting model under Ind AS 109 Financial Instruments will allow entities to reduce profit or loss and balance sheet volatility by applying hedge accounting in more circumstances.

Upon transition to the new hedge accounting model under Ind AS 109, a risk component of a non-financial item will be eligible as a hedged item, provided it is “separately identifiable and reliably measurable”. This criteria would generally be met if the risk component is contractually specified. It is also possible that non-specified risk components meet the criteria in some cases. Allowing a closer match between the hedged risk and the hedging derivative should result in more common risk management strategies to qualify for hedge accounting and therefore, lesser volatility (i.e., ineffectiveness) in profit or loss.

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