Oanda corporation Revision 5

Firm Commitments 

– Fair Value or Cash Flow Hedge 

The accounting treatment under IFRS, US GAAP, and Canadian GAAP allows either a cash flow hedge 

or a fair value hedge to be designated for foreign currency firm commitment. A firm commitment is a 

binding contract with an unrelated third party that specifies the quantity, price, and timeframe for the 

transaction (see Appendix A – Concepts and Terms). The ability to use either a cash flow hedge or a fair 

value hedge is useful as each transaction will create the same impact to earnings (opposite the impact 

of the hedged item); however, the accounting entries will be different. 

The gain or loss on cash flow forex hedges will be recorded in the OCI account and the amount will be 

reclassified to earnings when the gain or loss on the hedged item impacts earnings. For certain 

transactions, tracking the impact to earnings by the hedged item may be challenging.  

The gain or loss on fair value forex hedges will be recorded directly to earnings; however, the fair 

value of the hedged item will be adjusted at the same time. Similarly, the gain or loss on the designated 

hedged item will be adjusted to earnings at the same time. Typically, the effective portion of the fair 

value hedge recorded to earnings will be offset by the change in value of the hedged item. For example, 

the change in value of the hedged firm purchase commitment is recorded on the balance sheet as a 

purchase commitment. This value is opposite to the fair market value of the forex hedge. The change in 

value of hedged purchase commitments is recorded on the balance sheet.  

These commitments or their change in value are not typically recorded on the balance sheet (only 

disclosed in the financial statement notes). However, since the firm commitments are part of a 

designated fair value hedge, the change in commitment value is recorded on the balance sheet. While 

this may sound confusing, it can be demonstrated in the Firm Commitment Accounting Scenario below.