Hedging foreign exchange risk with derivative financial instruments: accounting treatment according to IFRS standards

Abstract

The thesis focuses on the analysis of the accounting treatment for the hedging operations of foreign exchange risk. At the international accounting level, the topic of hedge accounting is actually particularly sensitive because of the recent developments in the field. Indeed, during these last years, the IASB has published as a result of a project started in 2008 a new accounting standard for financial instruments. Through an overview about this new accounting standard, the IFRS 9, the main changes with respect to the previous accounting standard, the IAS 39, will be analysed focusing on what has been reserved to hedge accounting. The analysis continues with the exposure of a business case regarding the OTB group. This real case is examined to understand the hedging operations of the foreign exchange risk that take place within a multinational business that makes use of derivative financial instruments. This analysis allows making a series of considerations on the hedge accounting rules for what concerns the last developments of the IFRS standards. The objective of this thesis is to understand the impact that the new accounting standard could have on the foreign exchange risk management within a company and, in particular, within a multinational group like the OTB group. Overall, the changes introduced by the IFRS 9 should allow companies to apply the hedge accounting rules more easily, making the accounting discipline more consistent with the risk management policies actually applied by companies, and should allow investors to get more reliable information in the financial statement with respect to the IAS 39.