Keywords: Mazars, Thailand, Accounting, FAP, TFRS 9, Hedge Accounting
5 August 2016
This standard will be called TFRS 9, “Financial Instruments”, and will be effective on 1 January 2019.
All listed companies and public entities in Thailand are encouraged to adopt this standard early.
According to TFRS 9, “Financial Instruments”, the terms below are defined as follows:
A hedged item can be:
(a) A recognized asset or liability
(b) An unrecognized firm commitment
(c) A highly probable forecasted transaction or net investment in a foreign operation
The objective of hedge accounting is to represent in the financial statements the effect of an entity’s risk management activities when they use financial instruments to manage exposure arising from particular risks, where those risks could affect profit or loss (or other comprehensive income, in the case of investments in equity instruments for which an entity has elected to present changes in fair value in other comprehensive income).
An entity uses hedging to manage its exposure to risks, such as foreign exchange risk, interest rate risk, or the price of a commodity. Many entities choose to apply hedge accounting to show the effect of managing those risks in the financial statements.
In addition, TFRS 9 states that there are three types of hedge accounting, as follows:
1. Fair-value hedges
2. Cash-flow hedges
3. Hedges of net investments in foreign operations
A hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability, or firm commitment that is attributable to a particular risk, and could affect profit or loss.
A hedge of the exposure to variability in cash flows that: (i) is attributable to a particular risk associated with a recognized asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecasted transaction, and (ii) could affect profit or loss.