Oanda corporation Revision 5

Capturing Data on Firm Commitments 

Firm commitments are binding agreements with third parties. Information on firm commitments is 

included in the methods and procedures for capturing your financial commitments as disclosed in the 

financial statement notes and your purchase order system. Typically, the data capture exercise entails a 

process of identifying signed third-party agreements and managing this information.  

One of the challenges in this area of data capture is the need to properly segregate how the firm 

commitments are included in the foreign currency forecasted transactions. Firm commitments typically 

offer the ability for the company to choose between using a cash flow forex hedge or a fair value forex 

hedge, while forecasted transactions may only use cash flow hedges. 

Under both the cash flow and fair value hedges, the change in the effective portion of the forex hedge is 

recognized on the income statement at the same time at which the gains and losses from the hedged 

foreign currency item impacts earnings. However, the administration of tracking the impact of the 

hedged items on earnings is sometimes easier when using a fair value hedge. For example, if you are 

hedging a foreign currency purchase of raw materials, which are used in the production of finished 

products, it will be more challenging to administer the accounting entries related to when the cost of 

raw materials (built and sold to third parties) impacts the earnings.  

Under a cash flow hedge, the impact to earnings is recorded in the OCI account and transferred to 

earnings when the inventory is sold to third parties (not when it is sold to a subsidiary). However, under 

a fair value hedge, the accounting will be easier to administer since the fair value of the raw materials 

will be adjusted for the effective portion of the fair value hedge. Since the impact is included directly in 

the raw material cost, the impact to earnings will occur whenever the third-party sale of the finished 

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