Tentative Agenda Decision and comment letters—Application of the Highly Probable Requirement in a Cash Flow Hedge Relationship (IFRS 9 and IAS 39)


The IFRS Interpretations Committee tentatively decided not to add this matter to its standard-setting agenda at its meeting in September 2018. The Committee will reconsider the following tentative agenda decision, including the reasons for not adding the matter to the standard-setting agenda, at a future meeting. The Committee encourages interested parties to submit their responses using the link below.

Tentative agenda decision

The Committee received a request about the requirement in IFRS 9 and IAS 39 that a forecast transaction must be ‘highly probable’ to qualify as a hedged item in a cash flow hedge relationship. The request asked how an entity applies that requirement when the notional amount of the derivative designated as a hedging instrument (‘load following swap’) varies depending on the outcome of the hedged item (forecast energy sales). In addition, the request asked whether, when assessing or measuring hedge effectiveness, the hedged item must be fixed (in volume terms) at the inception of the hedging relationship, and whether the answers to these questions depend on whether the entity applies IAS 39 or IFRS 9.

The responses to outreach performed on the request and those received in comment letters confirmed that the financial instrument described in the request is not common. The comment letters also confirmed the views expressed by some Committee members that the request relates to the broader matter of how uncertainty over the timing and magnitude of a forecast transaction affects the highly probable assessment applying IAS 39 and IFRS 9.

The Committee observed that, when assessing whether a forecast transaction (in the request, the forecast energy sales) is highly probable, an entity considers uncertainty over both the timing and magnitude of the forecast transaction (paragraphs F.3.7 and F.3.11 of the Implementation Guidance accompanying IAS 39). In addition, the Committee observed that the terms of the hedging instrument (in the request, the load following swap) do not affect this assessment because the highly probable requirement is applicable to the hedged item.

The Committee also observed that, for hedge accounting purposes, the entity must document the forecast energy sales with sufficient specificity in terms of magnitude and timing so that when such transactions occur the entity can identify whether the transaction is the hedged transaction. Consequently, the forecast energy sales cannot be specified solely as a percentage of sales during a period because that would lack the required specificity (paragraphs F.3.10 and F.3.11 of the Implementation Guidance accompanying IAS 39).

The Committee noted that the highly probable requirement in IFRS 9 is not new; IAS 39 includes the same requirement. Although the Board decided not to carry forward any of the hedge accounting related Implementation Guidance that accompanied IAS 39, paragraph BC6.95 of IFRS 9 explains that not carrying forward the Implementation Guidance did not mean that the Board had rejected that guidance.

The Committee concluded that the requirements in IAS 39 and IFRS 9 provide an adequate basis for an entity to determine whether a forecast transaction is highly probable.

Consequently, the Committee [decided] not to add this matter to its standard-setting agenda.

Deadline for submitting comment letters: 21 November 2018


Comment letters are public and all comment letters received on the due process document can be accessed below.

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Access individual comment letters in the table below or download all letters as zip file.

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