Forex Hedge Accounting Treatment
OANDA’s FXConsulting
for Corporations
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statement as the gains/losses from the hedged foreign currency item.
The ineffective portion of a forex hedge’s change in value (for example, over-hedged amounts or
interest carrying costs) must be recognized immediately in earnings. Similarly, any forex hedge that
does not meet the criteria for designation or is not designated as a cash flow, fair value, or net
investment hedge has its change in fair market value recognized immediately in earnings.
Proper documentation is critical to achieving hedge accounting treatment and must be supplied up front
before a hedge is initiated. Further, prospective and retrospective assessments of a forex hedge must
take place over its lifetime to ensure the hedge is effective. As noted previously, any ineffective portion
of a forex hedge is recorded directly to the income statement.
The right to perform special hedge accounting for designated forex hedges must be earned by meeting
the required criteria and documentation requirements. It is not an automatic right.
Summary Table
The table on the following page offers a high-level summary of forex hedges, journal entries, and their
impacts to earnings.
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