Derivatives and Hedging
An overview of the financial accounting standards for derivatives and hedging are outlined below for companies that follow International, US, or Canadian accounting standards. For a more complete and detailed description of each standard, it is recommended to visit the respective issuer’s website. IAS 39 and CICA 3855 also appear in the Fair Value Measurements section.
| IAS 39 | FAS 133 | CICA 3855 & 3865 | |
| Title | Financial Instruments: Recognition and Measurement | Accounting for Derivative Instruments and Hedging Activities | 3855: Financial Instruments – Recognition and Measurement 3865: Hedges |
| Issuer | International Accounting Standards Board (IASB) | Financial Accounting Standards Board (FASB) | Canadian Institute of Chartered Accountants (CICA) |
| Region | International | USA | Canada |
| Effective | January 1, 2001 | June 1, 1999 | October 1, 2006 |
| Overview | IAS 39 establishes principles for recognising and measuring financial assets and liabilities. With respect to derivatives, IAS 39 requires companies to initially recognise their derivatives at fair value; fair value is defined as the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Derivatives that are designated as hedged items are subject to measurements under the hedge accounting requirements of IAS 39. | FAS 133 states that all derivatives must be recorded at fair value as an asset or liability. The ability to apply hedge accounting is optional. If a derivative qualifies as a hedge, the gains or losses from the derivative will match or offset the gains or losses from the value of the underlying transaction. To qualify for hedge accounting, FAS 133 provides rules and procedures for hedge effectiveness testing. If the derivative is ineffective, it is marked-to-market (MTM) in the companies’ earnings. | CICA 3855 prescribes when you recognize a financial instrument on the balance sheet and at what amount – sometimes using fair value; other times using cost based measures. It also specifies how to present financial instrument gains and losses. CICA 3865 specifies how to apply hedge accounting and what disclosures are necessary when it is applied.AcG-13 applies to private companies only and it deals with the identification, documentation, designation and effectiveness of hedging relationships and with the discontinuance of hedge accounting. |
| How FINCAD can help | FINCAD solutions can provide the fair value or mark-to-market (MTM) measurements of derivatives and fixed income instruments for inputs into a company’s hedge effectiveness testing. Applicable FINCAD solutions:
Click here to request a trial of one of the above solutions. |
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We hope that such information will assist you, but it should not be used or relied upon as a substitute for your own independent research. For a more comprehensive view of the standards/requirements, please visit the respective issuer's website.
