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Organizational Requirements
These hedging criteria are consistent with strong corporate governance and an approved forex hedging
policy. Determining the hedging policy in advance and ensuring active monitoring during the hedging
period will greatly increase management's understanding of forex hedging and its capacity for
managing risk. Active monitoring is essential for detecting and limiting the impact of any erroneous
hedges and their unintended consequences.
In both scenarios, for the IFRS or US GAAP, you need to measure the effectiveness of the hedge,
typically at each reporting date, using either the dollar offset method or regression testing. While
testing is required on both a retrospective and prospective view, you may use different methods for the
retrospective test (dollar offset) and the prospective test (regression analysis). When building your
regression tests, consult with your auditor to ensure you are meeting the auditor's guidelines on a
properly structured regression test (for example, the minimum number of data points). Further you will
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