Forex Hedge Accounting Treatment
OANDA’s FXConsulting
for Corporations
- 4 -
Who Is This Document Intended For?
CFOs, vice-presidents of finance, treasurers, controllers, and accountants can use this document to gain
a basic understanding of hedge accounting.
What Are the Steps to Hedge Accounting?
The first step in the process is deciding whether to hedge your company’s exposure to foreign currency
balances and transactions.
1. Your company needs to assess its forex risk related to how much foreign currency exposure it
has on the current balance sheet and on expected future transactions.
2. If your forex exposure exceeds your company’s appetite for risk, then you will need to build a
process for data capture. Each company will need to capture and validate its foreign currency
exposures to enable effective forex hedging for managing its foreign currency risk. For a
discussion, please see Appendix B – What to Hedge?.
3. While determining what to hedge (or after), you will need to create and implement processes
and procedures to manage forex hedging and its special accounting treatment, including
obtaining fair market values at each reporting period.
4. You require upfront documentation to designate a hedge for special accounting treatment.
Throughout the life of the designated hedge, the accounting standards require ongoing
effectiveness testing and adequate accounting systems to manage tracking when the hedged
item impacts earnings in order to release the forex hedge’s gain or loss to earnings.
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