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Hedge Accounting
Can any one explain, Hedge effectiveness tests and eligibility for hedge accounting
Under IAS 39, the hedge must both be expected to be highly effective (a prospective test) and be demonstrated to have actually been highly effective (a retrospective test) with ‘highly effective’ defined as a ‘bright line’ quantitative test of 80-125%. The ED replaces this with a requirement for the hedge to be designated so as to be neutral and unbiased, and in a way that minimises expected ineffectiveness. This could be demonstrated qualitatively or quantitatively, depending on the characteristics of the hedge.
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