The mere existence of a statistical correlation between two variables does not, by itself, support a valid conclusion that an economic relationship exists. then apply AASB 15 to the remaining components of the contract (AASB 15.7). Therefore, the AASB requirement to remeasure these financial liabilities at fair value on 1 July 2019 will likely result in significant changes to these financial liabilities. Hence, as long as the three-month LIBOR forward curve for the remaining life of that liability does not fall below 20 basis points, the hedged item has the same cash flow variability as a liability that bears interest at three-month LIBOR with a zero or positive spread. (c)       Entity C hedges part of its future jet fuel purchases on the basis of its consumption forecast up to 24 months before delivery and increases the volume that it hedges over time. Hence, an entity cannot apply hedge accounting on a net basis solely to achieve a particular accounting outcome if that would not reflect its risk management approach. Entity C concludes that these two risk components are separately identifiable and reliably measurable even though they are not contractually specified. B6.6.14        If the group of items does not have any offsetting risk positions (for example, a group of foreign currency expenses that affect different line items in the statement of profit or loss and other comprehensive income that are hedged for foreign currency risk) then the reclassified hedging instrument gains or losses shall be apportioned to the line items affected by the hedged items. Some of these include: For each class of financial assets and financial liabilities: 1. Conversely, in many cases an inflation risk component is not separately identifiable and reliably measurable. For a for-profit entity, the three new accounting standards that had a significant impact were: AASB 9 Financial Instruments; AASB 15 Revenue from Contracts with Customers; AASB 16 Leases Paragraphs in bold type state the main principles. B6.6.13        If items are hedged together as a group in a cash flow hedge, they might affect different line items in the statement of profit or loss and other comprehensive income. Consequently, Entity D may designate hedging relationships for the fixed-rate debt instrument on a risk component basis for the benchmark interest rate risk. Australian businesses due to the first time application of new revenue and financial instruments requirements. However, if an agreement to sell a financial asset is entered into concurrently with an agreement to repurchase the same asset at a fixed price or the sale price plus a lender’s return, then the asset is not derecognised. Consequently, for accounting purposes, if the hedging relationship is designated for the period up to the payment date, it must be discontinued when the receivable is recognised, because the risk management objective of the original hedging relationship no longer applies. For the sake of simplicity, the remainder of this (d)      Entity D holds a fixed-rate debt instrument. IFRS 9 and IAS 39 are two most important accounting standards for corporate treasurers because they address how to account for financial instruments, or how they are measured on an ongoing basis. The entity cannot designate an abstract amount of a net position up to FC20. Paragraphs in, is to be read in the context of other Australian Accounting Standards, including AASB 1048, . B6.5.12        Fluctuation around a constant hedge ratio (and hence the related hedge ineffectiveness) cannot be reduced by adjusting the hedge ratio in response to each particular outcome. (i)       The part comprises only specifically identified cash flows from a financial asset (or a group of similar financial assets). B7.2.1           At the date of initial application of this Standard, an entity must determine whether the objective of the entity’s business model for managing any of its financial assets meets the condition in paragraph 4.1.2(a) or if a financial asset is eligible for the election in paragraph 5.7.5. B6.4.8           An example of credit risk dominating a hedging relationship is when an entity hedges an exposure to commodity price risk using an uncollateralised derivative. Reclassification of financial assets (section 4.4), B5.1.1           The fair value of a financial instrument at initial recognition is normally the transaction. Similarly, if, for example, an entity hedges an exposure using a nominal amount of 40 units of a financial instrument, it shall designate the hedging relationship using a hedge ratio that is the same as that resulting from that quantity of 40 units (ie the entity must not use a hedge ratio based on a higher quantity of units that it might hold in total or a lower quantity of units) and the quantity of the hedged item that it actually hedges with those 40 units. To comply with the requirements for qualifying fair value hedges, an entity shall remeasure the hedged item for fair value changes (ie remeasure the item for fair value changes attributable to the hedged risk). For example, if the entity would not give up any interest upon termination or transfer of the servicing contract, the entire interest spread is an interest-only strip receivable. For example: (a)      the hedging relationship no longer meets the risk management objective on the basis of which it qualified for hedge accounting (ie the entity no longer pursues that risk management objective); (b)      the hedging instrument or instruments have been sold or terminated (in relation to the entire volume that was part of the hedging relationship); or. The adoption of the hedge accounting requirements of AASB 9 had no significant impact on AGL’s financial statements. B6.5.10        For example, an entity hedges an exposure to Foreign Currency A using a currency derivative that references Foreign Currency B and Foreign Currencies A and B are pegged (ie their exchange rate is maintained within a band or at an exchange rate set by a central bank or other authority). The changes are measured starting from, and by reference to, the date of rebalancing instead of the date on which the hedging relationship was designated. B6.4.6           The assessment of whether an economic relationship exists includes an analysis of the possible behaviour of the hedging relationship during its term to ascertain whether it can be expected to meet the risk management objective. New Financial Instruments Standard - AASB 9. AASB 9: Financial Instruments has been applied using the retrospective method, with comparative amounts restated where appropriate. B6.3.25        A similar example of a non-financial item is a specific type of crude oil from a particular oil field that is priced off the relevant benchmark crude oil. Hence, as long as the forward price (for each delivery) does not fall below CU25, the hedged item has the same cash flow variability as a crude oil sale at the benchmark crude oil price (or with a positive spread). AASB 16: Leases will be applied by the Company from its mandatory adoption date of 1 July 2019. • financial guarantee contracts (except those accounted for as insurance contracts). B6.4.17        If there are changes in circumstances that affect hedge effectiveness, an entity may have to change the method for assessing whether a hedging relationship meets the hedge effectiveness requirements in order to ensure that the relevant characteristics of the hedging relationship, including the sources of hedge ineffectiveness, are still captured. AASB 2005-9 Standards/Accounting & Auditing as made: This Standard amends AASB 4 Insurance Contracts, AASB 1023 General Insurance Contracts, AASB 139 Financial Instruments: Recognition and Measurement and AASB 132 Financial Instruments: Disclosure and Presentation in respect of accounting for certain types of insurance contracts such as financial guarantee, credit insurance and similar … Normally, this hedged position would not be reflected in the financial statements because the transactions are recognised in different reporting periods in the future. HKFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. In such a situation, the entity designates only cash flow losses that result from an increase in the price above the specified level. (b)      financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. • –Loan commitments subject to some exceptions. This compiled Standard applies to annual reporting periods. B6.5.27        A part of a hedging relationship is discontinued (and hedge accounting continues for its remainder) when only a part of the hedging relationship ceases to meet the qualifying criteria. On 24 July 2014 the IASB published the complete version of IFRS 9, ‘Financial instruments’, which replaces most of the guidance in IAS 39. (ii)       the pricing of refined oil products does not depend on which particular crude oil is processed by a particular refinery because those refined oil products (such as gas oil or jet fuel) are standardised products. (b)      if, at inception of the hedging relationship, the actual time value is lower than the aligned time value, the entity shall determine the amount that is accumulated in a separate component of equity by reference to the lower of the cumulative change in fair value of: Any remainder of the change in fair value of the actual time value shall be recognised in profit or loss. It incorporates relevant amendments made up to and including 12 December 2017. In this case: (ii)      if the entity has retained control, it shall continue to recognise the financial asset to the extent of its continuing involvement in the financial asset (see, 3.2.7    The transfer of risks and rewards (see, 3.2.9    Whether the entity has retained control (see, 3.2.10  If an entity transfers a financial asset in a transfer that qualifies for derecognition in its entirety and retains the right to service the financial asset for a fee, it shall recognise either a servicing asset or a servicing liability for that servicing contract. For example, in paragraph B6.3.18(d), the total defined nominal amount of CU100 million must be tracked in order to track the bottom layer of CU20 million or the top layer of CU30 million. B6.5.24        For the purposes of this Standard, an entity’s risk management strategy is distinguished from its risk management objectives. The measurement of the changes in the fair value of the hedging instrument related to the previously designated volume also remains unaffected. Instead, it is a representation of AASB, (a)       AASB 9 applies to annual reporting periods beginning on or after 1 January 2018 (instead of 1 January 2017) as a result of amendments made by AASB 2014-1, Entities may elect to apply the amendments to AASB 9 in this Standard as set out in paragraphs Aus1.3 and Aus1.4 of AASB 9, provided that AASB 10, Entities may elect to apply the amendments to AASB 9 in this Standard as set out in paragraphs Aus1.3 and Aus1.4 of AASB 9, provided that AASB 13, (i)        Entities may elect to apply the amendments to AASB 9 (2010) in this Standard only as set out in paragraph Aus 1.4 of AASB 9 (2010), provided that AASB 15. as issued and amended by the International Accounting Standards Board (IASB). (b)      the foreign currency risk related changes in the value of the highly probable forecast purchases. A transfer of a financial asset that is subject only to a put or call option or a forward repurchase agreement that has an exercise or repurchase price equal to the fair value of the financial asset at the time of repurchase results in derecognition because of the transfer of substantially all the risks and rewards of ownership. If an entity sells that crude oil under a contract using a contractual pricing formula that sets the price per barrel at the benchmark crude oil price minus CU10 with a floor of CU15, the entity can designate as the hedged item the entire cash flow variability under the sales contract that is attributable to the change in the benchmark crude oil price. BA.8             The fact that a liability is used to fund trading activities does not in itself make that liability one that is held for trading. then apply AASB 15 to the remaining components of the contract (AASB 15.7). However, if an entity elects to apply this Standard early and has not already applied AASB 9, Aus1.8          When applied or operative, this Standard supersedes Interpretation 9, 2.1      An entity shall apply this Standard to all items within the scope of AASB 139, Regular way purchase or sale of financial assets, 3.2.1  In consolidated financial statements, paragraphs 3.2.2-3.2.9, B3.1.1, B3.1.2 and B3.2.1-B3.2.17 are applied at a consolidated level. B6.5.38        If the actual forward element and the aligned forward element differ, an entity shall determine the amount that is accumulated in a separate component of equity in accordance with paragraph 6.5.16 as follows: (a)      if, at inception of the hedging relationship, the absolute amount of the actual forward element is higher than that of the aligned forward element the entity shall: (i)        determine the amount that is accumulated in a separate component of equity on the basis of the aligned forward element; and. We are an unlisted company, part of a Deed of Cross Guarantee, and use ASIC's relief for wholly-owned entities to exempt us from lodging our standalone financial statements. (c)       an entity has a risk management strategy whereby it manages the foreign currency risk of forecast sales and the resulting receivables. AASB 16: Leases will be applied by the Company from its mandatory adoption date of 1 July 2019. (b)      if the cap is a forward start option that hedges increases in interest rates for years two and three out of a total life of the floating rate bond of five years, the time value of that cap is amortised during years two and three. B4.3.9           As noted in paragraph B4.3.1, when an entity becomes a party to a hybrid contract with a host that is not an asset within the scope of this Standard and with one or more embedded derivatives, derivatives at fair value at initial recognition and subsequently. Consequently, an entity with such an exposure frequently adjusts the hedging instruments used to manage the interest rate risk as the exposure changes. If interest rates are low the entity fixes the interest for more debt than when interest rates are high. It takes into account amendments up to and including, This compilation is not a separate Accounting Standard made by the AASB. Hedged items 53 7.3.1 Risk components as hedged items 53 7.3.2 Aggregated exposures 60 7.4. For example, the qualifying criteria apply, including that the hedging relationship must meet the hedge effectiveness requirements, and any hedge ineffectiveness must be measured and recognised. Hence, an entity first consolidates all subsidiaries in accordance with AASB 10. This could involve reducing the swap position by a CU20 nominal amount but, depending on the circumstances, an entity might retain that swap volume and, for example, use it for hedging a different exposure or it might become part of a trading book. In that case, an entity shall recognise any changes in time value in other comprehensive income, even though the cumulative change in time value over the total period of the hedging relationship is nil. AASB 9 Financial Instruments applies for reporting periods beginning on or after 1 January 2018 and replaces AASB 139 Financial Instruments: Recognition and Measurement. In recent editions of Accounting News we have examined the impact that the adoption of IFRS 9 Financial Instruments will have on accounting for financial assets: ... (except for a derivative that is a financial guarantee contract or a … For the purposes of applying, When measuring the fair values of the part that continues to be recognised and the part that is derecognised for the purposes of applying, B3.2.12        The following is an application of the principle outlined in, B3.2.13        The following are examples of how an entity measures a transferred asset and the associated liability under, (b)      If a put option obligation written by an entity or call option right held by an entity prevents a transferred asset from being derecognised and the entity measures the transferred asset at amortised cost, the associated liability is measured at its cost (ie the consideration received) adjusted for the amortisation of any difference between that cost and the amortised, cost of the transferred asset at the expiration date of the option. The measurement of the changes in the fair value of the hedging instrument related to the volume that continues to be designated also remains unaffected. For example - If a contract includes a financial instrument (e.g. This method would not be appropriate if changes in fair value arising from other factors are significant. An example is when the time value of an option relates to a hedged item that results in the recognition of an item whose initial measurement includes transaction costs (for example, an entity hedges a commodity purchase, whether it is a forecast transaction or a firm commitment, against the commodity price risk and includes the transaction costs in the initial measurement of the inventory). The entity documents that the bottom layer of sales (FC100) is made up of a forecast sales volume of the first FC70 of Product A and the first FC30 of Product B. If the entity is unable to measure the fair value of the embedded derivative using this method. 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