As per US GAAP, Cash flow hedge accounting for a foreign currency debt is permissible using a FX forward contract to cover the Foreign Exchange risk . Section 815-20-25-28 is quoted below:
“If the hedged item is denominated in a foreign currency, an entity may designate any of the following types of hedges of foreign currency exposure:
a. A fair value hedge of an unrecognized firm commitment or a recognized asset or liability (including an available-for-sale security)
b. A cash flow hedge of any of the following:
1. A forecasted transaction
2. An unrecognized firm commitment
3. The forecasted functional-currency-equivalent cash flows associated with a recognized asset or liability
4. A forecasted intra-entity transaction.
c. A hedge of a net investment in a foreign operation.”
Such a cash flow hedge is specifically permitted by virtue of Section 815-20-25-29 which is quoted below:
“The recognition in earnings of the foreign currency transaction gain or loss on a foreign-currency-denominated asset or liability based on changes in the foreign currency spot rate is not considered to be the remeasurement of that asset or liability with changes in fair value attributable to foreign exchange risk recognized in earnings, which is discussed in the criteria in paragraphs 815-20-25-15(d) and 815-20-25-43(c).
Thus, those criteria are not impediments to either of the following:
a. A foreign currency fair value or cash flow hedge of such a foreign-currency- denominated asset or liability
b. A foreign currency cash flow hedge of the forecasted acquisition or incurrence of a foreign currency-denominated asset or liability whose carrying amount will be remeasured at spot exchange rates under paragraph 830-20-35-1.
Is this type of a transaction eligible as a Cash Flow hedge under IAS 39 of IFRS? …read more on Forum