Research-Thesis: Application of hedge accounting under IFRS by industrial and commercial companies as part of their risk management strategies: a review of market practices.

Abstract

The objective of this thesis is to analyze how industrial and commercial companies listed on the BEL 20, AEX 25 and LuxX Price Index apply hedge accounting under IFRS as part of their risk management strategies. The thesis is divided into two parts. The first part focuses on the theoretical framework. The objective is to explain hedge accounting and the requirements of IFRS 7 and IFRS 9. The second part is a market study based on a mixed-method approach, combining a quantitative analysis of 32 companies’ 2024 financial statements and qualitative interviews with six professionals from Deloitte, KPMG, PwC, Umicore, UCB and EFRAG.

The findings show that all 32 companies are exposed to foreign exchange, interest rate, credit and liquidity risks, while commodity price risk affects 53% of the sample. 87.5% use derivative instruments to hedge their exposures and 81.25% formally apply hedge accounting under IFRS 9. Cash flow hedges are the most commonly used type of hedge accounting (84.62%), due to the predominance of risks related to future cash flows. Net investment hedges are also widely used (61.54%). Fair value hedges are the least used (46.15%), primarily applied to fixed-rate debt. In terms of instruments, companies systematically favour simple derivatives, namely forwards, swaps and options, which is consistent with their strong risk aversion.

Some sectoral differences emerge. For example, companies in the commodities and materials sector display the most complex hedging strategies. Healthcare and biotech firms, characterized by high margins, make limited use of hedge accounting. Finally, disclosure quality under IFRS 7 varies considerably. While all companies meet the minimum requirements due to being audited, voluntary disclosure practices differ significantly.