Cash flow hedges using interest rate swaps: accounting under IFRS
The paper discloses the accounting treatment for cash flow hedge of exposure to risks arising from the changes in cash flows of financial instruments, in which interest rate swaps are used as hedging instruments. The author considers the economic meaning of hedge relationship as an instrument of red...
Saved in:
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Zhytomyr Polytechnic State University
2020-06-01
|
| Series: | Економіка, управління та адміністрування |
| Subjects: | |
| Online Access: | http://ema.ztu.edu.ua/article/view/207996/208179 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1849736860302049280 |
|---|---|
| author | V.S. Ambarchian |
| author_facet | V.S. Ambarchian |
| author_sort | V.S. Ambarchian |
| collection | DOAJ |
| description | The paper discloses the accounting treatment for cash flow hedge of exposure to risks arising from the changes in cash flows of financial instruments, in which interest rate swaps are used as hedging instruments. The author considers the economic meaning of hedge relationship as an instrument of reducing financial risks being inherent to financial assets and financial liabilities of the bank. The paper represents the purpose of the cash flow hedge as well as the mechanics of the interest rate swap as the most efficient instrument of the cash flow hedge relationship. The author analyzes the statements of IFRS 9 on the cash flow hedge accounting: recognizing the cash flow hedge reserve, assessing the portion of gain or loss on the swap that is either effective or ineffective hedge. The paper explains the procedures of the cash flow hedge accounting to reduce interest rate risks that arises from the changes in the cash flows of floating-rate financial liabilities. In particular, the paper covers the procedures of the fair value measurement of a hedging instrument as the present value of the difference between cash inflows and outflows discounted at spot rates for each period. The author discloses the accounting for the cash flow hedge: the accrual of interests on the financial liability, the change in the fair value of swap, the net settlement of the interest on swap, the reclassification of the interest on swap and settlement of interests on the financial liability. The article suggests the accounting procedures comply with the requirements of IFRS 9 on the cash flow hedge accounting and recommends the implementation to Ukrainian banks. |
| format | Article |
| id | doaj-art-867de0e362844d9fb6c3ba1cd70ff0a7 |
| institution | DOAJ |
| issn | 2664-245X 2664-2468 |
| language | English |
| publishDate | 2020-06-01 |
| publisher | Zhytomyr Polytechnic State University |
| record_format | Article |
| series | Економіка, управління та адміністрування |
| spelling | doaj-art-867de0e362844d9fb6c3ba1cd70ff0a72025-08-20T03:07:10ZengZhytomyr Polytechnic State UniversityЕкономіка, управління та адміністрування2664-245X2664-24682020-06-01292344110.26642/ema-2020-2(92)-34-41Cash flow hedges using interest rate swaps: accounting under IFRSV.S. Ambarchianhttps://orcid.org/0000-0003-3871-5135The paper discloses the accounting treatment for cash flow hedge of exposure to risks arising from the changes in cash flows of financial instruments, in which interest rate swaps are used as hedging instruments. The author considers the economic meaning of hedge relationship as an instrument of reducing financial risks being inherent to financial assets and financial liabilities of the bank. The paper represents the purpose of the cash flow hedge as well as the mechanics of the interest rate swap as the most efficient instrument of the cash flow hedge relationship. The author analyzes the statements of IFRS 9 on the cash flow hedge accounting: recognizing the cash flow hedge reserve, assessing the portion of gain or loss on the swap that is either effective or ineffective hedge. The paper explains the procedures of the cash flow hedge accounting to reduce interest rate risks that arises from the changes in the cash flows of floating-rate financial liabilities. In particular, the paper covers the procedures of the fair value measurement of a hedging instrument as the present value of the difference between cash inflows and outflows discounted at spot rates for each period. The author discloses the accounting for the cash flow hedge: the accrual of interests on the financial liability, the change in the fair value of swap, the net settlement of the interest on swap, the reclassification of the interest on swap and settlement of interests on the financial liability. The article suggests the accounting procedures comply with the requirements of IFRS 9 on the cash flow hedge accounting and recommends the implementation to Ukrainian banks.http://ema.ztu.edu.ua/article/view/207996/208179accountinghedgeinterest rate swapcash flow hedgeifrs 9 |
| spellingShingle | V.S. Ambarchian Cash flow hedges using interest rate swaps: accounting under IFRS Економіка, управління та адміністрування accounting hedge interest rate swap cash flow hedge ifrs 9 |
| title | Cash flow hedges using interest rate swaps: accounting under IFRS |
| title_full | Cash flow hedges using interest rate swaps: accounting under IFRS |
| title_fullStr | Cash flow hedges using interest rate swaps: accounting under IFRS |
| title_full_unstemmed | Cash flow hedges using interest rate swaps: accounting under IFRS |
| title_short | Cash flow hedges using interest rate swaps: accounting under IFRS |
| title_sort | cash flow hedges using interest rate swaps accounting under ifrs |
| topic | accounting hedge interest rate swap cash flow hedge ifrs 9 |
| url | http://ema.ztu.edu.ua/article/view/207996/208179 |
| work_keys_str_mv | AT vsambarchian cashflowhedgesusinginterestrateswapsaccountingunderifrs |