hedge accounting

Definition

An accounting treatment that matches the timing of gains and losses on hedging instruments with the hedged items, preventing volatility from making your financials look bipolar. IFRS 9 and ASC 815's way of acknowledging that risk management shouldn't tank your earnings.

Example Usage

We couldn't apply hedge accounting to our currency swaps because documentation requirements are basically a part-time job.

Origin

Formalized in accounting standards during the 1990s as derivatives proliferated and companies needed ways to report them sensibly

Fun Fact

Hedge accounting qualification requires such extensive documentation that many companies simply accept earnings volatility rather than file the paperwork.

Source: Derivatives accounting standards

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