Explain IFRS 9 hedge accounting.
A core Corporate Treasury interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.
THE SHORT ANSWER
Aligns P&L impact of hedge instrument with hedged item. Cash flow hedge: effective portion in OCI until hedged item hits P&L. Fair value hedge: both instrument and item MTM to P&L (offsetting). Requires documentation at inception. Without it: derivative MTM goes straight to P&L.
WHAT INTERVIEWERS LISTEN FOR
- ✓Aligns P&L impact of hedge and hedged item
- ✓Cash flow hedge defers effective portion in OCI
- ✓Fair value hedge recognizes both in P&L
- ✓Documentation required at inception
- ✓Without hedge accounting, derivative MTM to P&L
COMMON MISTAKES
- ✗Confusing cash flow and fair value hedge treatment
- ✗Forgetting documentation requirement
- ✗Assuming all derivatives automatically qualify for hedge accounting
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