New IFRS 9 hedge accounting rules for corporates - Opportunities and challenges

Abstract

As January 1st 2018, IAS 39 is officially replaced by IFRS 9 ‘Financial Instruments’. It is interesting to stop on that subject because that transition began in 2009 and is occurring now officially in 2018. It concerns all companies respecting IFRS rules and particularly applying hedge accounting. The objective is to summarise the objectives and requirements of the new hedge accounting rules and understand the opportunities and challenges that its implementation will involve for corporates. The first part of this work the theoretical approach of the IFRS 9. The approach is done step by step and made as simple as possible to let any reader understand fully and clearly the whole thesis. What is hedging? What is hedge accounting? Why Corporates apply it? Why the transition from IAS 39 to IFRS 9? What do the two norms have in common? What differences between the two norms? What is new in IFRS 9? Answers are given to all these questions. The main benefits of IFRS 9 hedge accounting are the removal of retrospective hedge effectiveness test (80-125% rule), the introduction of ‘cost of hedging’ approach and the extended possibilities of hedging application, considered the biggest opportunity for Corporates, as well as new opportunities like the exception for ‘own use’ contracts. Thanks to the new norm, accounting treatments are better aligned with risk management activities. The biggest challenge of the new norm is its implementation within companies. Current processes have to be adapted, transition has to be measured, calculated and prepared. At first companies can be negatively impacted at financial levels. In the second part, I approach the different opportunities and challenges that non-financial companies encountered when implementing hedge accounting under the new norm. I aim to find out what IFRS 9 application involved, through the analysis of financial statements and a market survey with BEL20 non-financial companies. After analysing the financial reports of companies, and with the information currently accessible, I discovered that, at the very end, BEL20 non-financial companies are not significantly impacted by the new norm when it comes to hedge accounting because the existing relationship qualifying under IAS 39 still qualify and be effective under IFRS 9. It seems that until now, non-financial companies have seen the new norm as a ‘compliance constraint’, processes being adapted from previous IAS 39 norm, and not the financial opportunity IFRS 9 hedge accounting really is.