Spotlight: Hedging and internal control post-FAS 133 (TT Nov00 p35-38)

Hedging and hedge accounting are, perhaps unfortunately, two very different things. The need of accounting standard setters to ensure that rules are sufficiently specific to avoid earnings manipulation are almost invariably at odds with the need for dynamic and flexible corporate financial risk management.

This conflict stems largely from the fact that hedging is, by its very nature, highly judgmental and that the boundary between hedging and position taking is notoriously difficult, sometimes impossible, to define in practice.