IFRS 9 Outstanding issue in IASB’s review draft - ACT response

The ACT has written to the International Accounting Standards Board (IASB) highlighting an issue in the Review Draft of IFRS 9 Hedge Accounting that did not exist in the exposure draft previously commented on.

The review draft specifically excludes currency basis risk from the value of a hypothetical derivative, used to calculate the change in the value of the hedged item. This will result in profit and loss volatility because the actual derivative (i.e. the hedging instrument) incorporates a currency basis spread that cannot be avoided. The ACT argues for an exemption of this market phenomenon that would affect all market participants entering into cross currency swaps.