FX Hedging Publication

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ASSURANCE AND ADVI SORY
BUSI NESS SERVI CES
Foreign currency hedges
and hedges of net investments
in foreign operations
In accordance with IAS 39 Financial Instruments: Recognition and Measurement
INTERNATI ONAL FI NANCI AL
REPORTI NG STANDARDS
Table of Contents
INTRODUCTION....................................................................................................................... 1
FAIR VALUE HEDGE............................................................................................................... 2
CAS H FLOW HEDGE.............................................................................................................. 3
ACCOUNTING TREATMENT FOR QUALIFYING HEDGES........................................... 3
HEDGE OF NET INVESTMENT IN FOREIGN OPERATION........................................... 3
HEDGE EFFECTIVENESS....................................................................................................... 4
TREATMENT WHEN HEDGE ACCOUNTING IS DISCONTINUED............................... 4
FOREIGN CURRENCY HEDGES........................................................................................... 5
EXAMPLES OF FOREIGN CURRENCY CASH FLOW HEDGES.................................... 5
EXAMPLE 1: ANTICIPATED SALES HEDGED WITH A FORWARD CONTRACT .................................................5
EXAMPLE 2: ANTICIPATED INTERCOMPANY SALES HEDGED WITH A FORWARD CONTRACT .......................8
EXAMPLE 3: ANTICIPATED SALES HEDGED WITH AN OPTION CONTRACT ...................................................9
EXAMPLES OF FOREIGN CURRENCY FAIR VALUE HEDGES.................................. 13
EXAMPLE 4: FIRM COMMITMENT HEDGED USING A FORWARD CONTRACT...............................................13
EXAMPLE 5: HEDGE OF CHANGES IN FAIR VALUE OF AVAILABLE-FOR-SALE EQUITY INVESTMENTS
ATTRIBUTABLE TO FOREIGN CURRENCY RISK USING A FORWARD CONTRACT ..........................................17
EXAMPLES OF HEDGES OF FOREIGN-CURRENCY-DENOMINATED ASSETS OR
LIABILITIES ............................................................................................................................ 22
EXAMPLE 6: FAIR VALUE HEDGE OF A FIXED RATE, FOREIGN CURRENCY-DENOMINATED LOAN
CONVERTED INTO A VARIABLE RATE, FUNCTIONAL CURRENCY LOAN USING A CROSS CURRENCY INTEREST
RATE SWAP..............................................................................................................................................22
EXAMPLE 7: CASH FLOW HEDGE OF A FIXED-RATE, FOREIGN CURRENCY DENOMINATED LOAN
CONVERTED INTO A FIXED RATE, FUNCTIONAL CURRENCY LOAN USING A CROSS CURRENCY SWAP ........26
EXAMPLE 8: CASH FLOW HEDGE OF A FIXED-RATE, FOREIGN-CURRENCY-DENOMINATED ZERO-COUPON
NOTE CONVERTED INTO A FIXED-RATE, FUNCTIONAL CURRENCY NOTE USING A FORWARD CONTRACT...33
EXAMPLES OF HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS..... 37
EXAMPLE 9: ACCOUNTING FOR A NET INVESTMENT (NO HEDGE ACCOUNTING).......................................37
EXAMPLE 10: ACCOUNTING FOR A NET INVESTMENT (WITH HEDGE ACCOUNTING AND NO
INEFFECTIVENESS)...................................................................................................................................41
EXAMPLE 11: ACCOUNTING FOR A NET INVESTMENT (WITH HEDGE ACCOUNTING WITH
INEFFECTIVENESS PRESENT) ....................................................................................................................43

1
Introduction
This publication is designed to provide an overview of the accounting requirements for hedge accounting,
such as those contained in IAS 39, speciality guidelines and the forthcoming proposed amendments to
IAS 39, but does not explain or refer to all of the complex rules relating to hedge accounting. This
document is not intended to constitute advice in any particular circumstances and information contained
in this document may be incorrect, incomplete or out of date. EYGM Limited gives you no warranty or
assurance about the document and neither we nor any of our affiliates, nor any partner, officer, agent,
employee or sub-contractor of EYGM Limited or any of our affiliates, will be liable to you or anyone else
for any losses or damages arising in connection with it. As a result, you should not rely on this document
in any way and you use it at your own risk. You should consult your usual Ernst & Young contact before
concluding on the accounting treatment of specific transactions.

February 2005

2
The International Accounting Standards Board (IASB) issued in December 2003 (as amended 2004)
the revised IAS 39 Financial Instruments: Recognition and Measurement (IAS 39). This replaces the
version of the standard previously applied by entities currently reporting under International Financial
Reporting Standards (IFRS) and will also be applicable for those entities adopting IFRS for 2005.
IAS 39 provides comprehensive guidance on the recognition and measurement of derivatives and
hedging activities. Under IAS 39, all derivatives must be recognised and measured at fair value on the
balance sheet. However, where the derivative is hedging an asset or liability or highly probable
transaction, the balance sheet measurement of the derivative may not correspond with the basis on which
the hedged item is recognised and measured in the balance sheet. In such cases, if all recognised gains
and losses on the (re-) measurement of the hedge instrument were to be recorded in profit and loss, the
reported results for the period would therefore not reflect the economic reality of the hedge.
Hedge accounting attempts to match the timing of profit or loss recognition on the derivative with that of
the item being hedged if specific hedge accounting criteria are met.
Key steps to achieving hedge accounting:
1. Identify the nature of the risk being hedged
2. Identify the hedged item or transaction
3. Identify the type of hedge fair value or cash flow
4. Identify the hedging instrument
5. Document the hedging relationship above, including the risk management
objectives, strategy for undertaking the hedge and method to be used to test
effectiveness
6. Demonstrate that the hedge has and will continue to be highly effective
7. Monitor effectiveness throughout the life of the hedge
Hedged items may include a recognised asset or liability, an unrecognised firm commitment, an
uncommitted but highly probable forecast transaction, or a net investment in a foreign operation. The
hedged item may be a single asset, liability, commitment or transaction, or a group of such items as long
as risk characteristics within the group are homogeneous. A portfolio of assets and liabilities is not (in
general) permitted to be a hedged item.
Any derivative that involves an external party can be designated as a hedge instrument, except for written
options (unless designated to offset a purchased option). A non-derivative financial asset or liability can
only be designated as a hedge of foreign currency risk.
Fair value hedge
A fair value hedge is defined as the hedge of the exposure to changes in the fair value of:
A recognised asset or liability; or
A (previously unrecognised firm) commitment to buy or sell an asset at a fixed price; or
An identified portion of such an asset or liability, or firm commitment;
that is attributable to a particular risk and could affect reported profit or loss.
I A S 39: F I N A N C I A L I N S T R U M E N T S :
R E C O G N I T I O N A N D ME A S U R E M E N T
3 F OR E I GN CU R R E N C Y HE DGE S
The gain or loss on the hedge instrument is recognised in profit or loss in the period it arises. The
carrying amount of the hedged item is adjusted for the gain or loss attributable to the hedged risk and the
change in the fair value of the hedged item attributable to the hedged risk is recognised immediately in
profit or loss. To the extent that a hedge relationship is perfectly effective, these two amounts recognised
in profit or loss should, theoretically, offset each other.
Cash flow hedge
A cash flow hedge is defined as the hedge of the exposure to variability in cash flows attributable to a
particular risk associated with a recognised asset or liability, firm commitment, or a highly probable
forecast transaction, which could affect profit or loss.
The effective portion of the gain or loss on the hedge instrument is recognised in equity. Any ineffective
portion is recognised immediately in profit or loss. The gain or loss deferred in equity is recognised in
profit or loss when the hedged cash flows or related non-financial asset or liability affects profit or loss.
Accounting treatment for qualifying hedges
Fair value hedges Cash flow hedges
1. Gain or loss on hedging
instrument
Recognised immediately in
p&l
To the extent the hedge is
effective, in equity
2. Adjustment to hedged item Change in fair value due to
the hedged risk recognised
immediately in p&l
N/A
3. Hedged effectiveness is recorded
in p&l
By default Calculated
4. Gain or loss in equity is
transferred to p&l
N/A At the same time as the change in
the hedged cash flows or related
non-financial asset or liability is
recognised in p&l
Hedge of net investment in foreign operation
Hedge accounting for the hedge of a net investment in a foreign operation is accounted for in a similar
manner to a cash flow hedge. Fundamentally, IAS 39 embraces the traditional process of matching
foreign currency gains or losses on a derivative or liability against the revaluation of a foreign operation,
based on period end exchange rates. The gain or loss on the hedging instrument is recorded in equity to
offset the translation gains and losses on the net investment, to the extent that the hedge is highly
effective. The ineffective portion of the hedge relationship is recognised in profit or loss.
4
Hedge effectiveness
IAS 39 requires that hedge effectiveness be maintained in order to qualify for hedge accounting. It must
be demonstrated that the hedge relationship is highly effective:
prospectively, at inception and throughout its life, the changes in the fair value and cash flows of the
hedge instrument must be expected to be highly effective in offsetting the changes in the fair value or
cash flows of the hedged item; and
retrospectively, measured at each reporting period, the hedge must have been highly effective, so that
the actual level of offset must have been within a range of 80-125%.
Hedge accounting must be discontinued, prospectively, when:
the hedge instrument expires, is sold or terminated or exercised; or
the hedge no longer meets the effectiveness criteria; or
the forecast transaction that is a subject to a cash flow hedge is no longer highly probable; or
the entity revokes the designation.
Treatment when hedge accounting is discontinued
Treatment of Fair value hedges Cash flow hedges
1. Future changes in fair value
of hedging instrument
Continue to be taken to p&l Recognised immediately in p&l
2. Changes in fair value of
hedged item
Treat as if not hedged
For hedges of interest-bearing
assets, adjustment to date is
amortised to p&l over the period
to maturity

N/A
Amounts recorded to date in
equity:
a) hedged item still exists or
still expected to occur
b) hedged item or transaction
sold or no longer expected to
occur

N/A

N/A

Transferred to p&l at the same
time as the change in the hedged
cash flows is recognised in p&l
Transferred to p&l immediately
Foreign currency hedges
Foreign currency hedges (fair value, cash flow and net investment), generally, need to meet the following
criteria to qualify for hedge accounting:
the hedged item must be denominated in a currency other than the entitys functional currency; or
the hedge relationship is a hedge of a net investment in a foreign operation, as defined in IAS 21.
Examples of such transactions include:
fair value hedge: a forward foreign exchange contract used to hedge the foreign currency exposure on
an available-for-sale equity instrument;
cash flow hedge: a forward foreign exchange contract used to hedge the currency exposure of an
operating lease denominated in another currency;
cash flow hedge: a forward foreign exchange contract entered into to hedge a highly probable forecast
sales transaction in a foreign currency.
The accounting for qualifying hedges of items denominated in a foreign currency follows the same
accounting rules as other fair value and cash flow hedges. For hedges of foreign currency exposure of
firm commitments IAS 39 allows companies to choose to apply either fair value or cash flow hedge
accounting.
The following examples illustrate the possible accounting treatment of certain foreign currency
transactions. The presented treatment is not in all cases the only possible treatment.
Examples of foreign currency cash flow hedges
Example 1: Anticipated sales hedged with a forward contract
Example 2: Anticipated intercompany sales hedged with a forward contract
Example 3: Anticipated sales hedged with an option contract
Example 1: Anticipated sales hedged with a forward contract
ABC SA and its subsidiary, DEF SA, both use the Euro as their functional currency. ABC wants to limit
the effect of currency fluctuations in its group accounts in the next quarter, by hedging forecasted yen-
denominated sales by DEF. ABC expects DEF to sell 13,500,000 of goods on 30 J une 20X1. Therefore,
on 1 J anuary 20X1, it enters into a six-month forward contract to sell 13,500,000 and receive 96,429
on 30 J une 20X1 (at a forward rate of 1: 140). Since ABC and DEF both have the same functional
currency, ABC is permitted to hedge the subsidiarys exposure, as IAS 39 IG F.2.14 does not require the
operating unit that is exposed to the risk being hedged, to be a party to the hedging instrument.
6
The following table summarises the key data:
Date Spot rate at indicated
date
Forward rate for
6/30/20X1
Forward contract fair value
()
1/1/20X1 1: 135 1: 140
31/3/20X1 1: 140 1: 142 1,338
1

30/6/20X1 1: 144 1: 144 2,679
2

ABC documents the hedging relationship as follows:
Risk management
objective and nature
of risk being hedged
The objective of the transaction is to hedge highly probable anticipated yen sales
against currency fluctuations.
Date of designation 1 J anuary 20X1.
Hedging instrument A six-month forward contract to sell 13,500,000 and receive 96,429 on 30 J une
20X1.
Hedged item The forward contract is designated as a hedge of the highly probable anticipated
sales of 13,500,000 on 30 J une 20X1.
How hedge
effectiveness will be
assessed
Because the critical terms of the forward contract and the forecast transaction
coincide (i.e., the currency, notional amount, and timing), changes in cash flow
attributable to the risk being hedged are expected to be completely offset by the
hedging derivative. (Unless over- or under-hedging results because the
transaction does not occur in the amounts or at the times anticipated, or there is a
change in the derivative counterpartys credit rating, there should be no hedge
ineffectiveness). Counterparty credit risk will be continuously monitored.
How hedge
measured
Effectiveness will be measured by comparing the changes in the present value of
the cash flow arising from the hedged forecast sale at the forward rate, with the
changes in the fair value of the forward contract.

1
((13,500,000/140) - ( 13,500,000/142))/(1.015), with 1.5% representing ABCs assumed discount
rate for one quarter (6% annualized).
2
(13,500,000/140) - (13,500,000/144).
ABC would record the following journal entries:
On 1 J anuary 20X1, no entry is required because the fair value of the forward contract is zero at
inception.
DR CR
For the quarter ended 31 March 20X1:
Forward contract 1,338
Separate component of equity 1,338
To account for the change in the fair value of the forward contract.
For the quarter ended 30 J une, 20X1:
Cash 2,679
To account for cash received on settlement of forward contract.

Accounts receivable 93,750
Sales 93,750
To record the sales transaction at the prevailing spot exchange rate on
the date of sale
3
.

Sales 2,679
To reclassify the amount relating to the hedged item that affected
earnings from separate component of equity.

3
(13,500,000/ 144 per )
8

Effect of the
hedge on the
income
statement
The above hedge had the effect of locking in ABCs sales revenue on a 13,500,000
sale at 96,429 (13,500,000/140 per Euro - the forward rate at the date of hedge
designation), despite subsequent changes in the exchange rate. The hedged result is
achieved by the combination of the actual revenue at the spot rates (93,750) and the
gain on the forward contract (2,679), reclassified from the separate component of
equity at the date of the sale.
Example 2: Anticipated intercompany sales hedged with a forward contract
Now assume a change in facts from Example 1, in that ABC operates through a J apanese subsidiary, GHI
Co. that has the Yen as its functional currency. The parent uses the Euro as its functional currency and
wants to limit the effect of currency fluctuations on inventory sales to its J apanese subsidiary. ABC
expects to ship 13,500,000 of goods to the subsidiary on 30 J une 20X1. The J apanese subsidiary expects
to sell 50% of the inventory received during the quarter ending 30 September 20X1, and the remainder
during the fourth quarter. On 1 J anuary 20X1, ABC enters into a six-month forward contract to sell
13,500,000 and receive 96,429 on 30 J une 20X1 (forward rate 1: 140). The sale to the subsidiary
occurs on 30 J une 20X1.
In this case ABC is not allowed to apply hedge accounting for the forward contract in its consolidated
accounts, as IAS 39 does not permit forecast intercompany transactions to be treated as the hedged item.
Consequently the forward should be recorded at fair value with changes in profit or loss.
ABC would record the following journal entries:
On 1 J anuary 20X1, no entry is required because the fair value of the forward contract is zero at
inception.
DR CR
Profit or loss 1,338
For the quarter ended 30 J une 20X1:
Profit or loss 1,341
DR CR
Cash 2,679
To account for cash received on settlement of forward contract.
Intercompany receivable 93,750
Intercompany sales 93,750
Cost of sales
4
93,750
Inventory 93,750
To record the intercompany transaction at the prevailing exchange rate on the
date of sale
5
.

However, the Exposure Draft (ED) Cash Flow Hedge Accounting of Forecast Intragroup
Ttransactions will, if it is adopted, allow the consequent Yen sales by DEF to be treated as the subject of
a cash flow hedge, if highly probable. To be highly effective, the hedge would need to be extended so as
to reflect the expected timing of DEFs sales. The hedge documentation will also need to be revised to
reflect this new hedge designation. It should be noted that, unless the IASB introduces appropriate
transitional rule, that allow a retrospective change in the hedge designation, companies already reporting
under IAS 39 will not be able to apply hedge accounting of such transactions for periods prior to the new
hedge being established.
Example 3: Anticipated sales hedged with an option contract
XYZ SA anticipates a sale to a Canadian customer of CAD1,400,000 in six months. On 1 J anuary 20X1,
when the spot rate was 1 to CAD1.40, XYZ purchased an option to sell CAD1,400,000 on 30 J une
20X1, for 979,021 (1 : CAD1.43). The cost and the fair value of the option at inception was 32,000.
The functional currency of XYZ is the Euro.
This option will be effective if the Euro strengthens to a rate of 1: CAD1.43 or greater and will be
ineffective if the Euro does not strengthen to that level. XYZ has defined its foreign exchange risk as
being in just one direction, and wants to preserve the upside foreign currency potential if the Euro
weakens.

4
For this example it is assumed that the intercompany sales price equals inventory cost, so sales for ABC
are equal to its cost of sales and there is no profit to be eliminated on consolidation. ABCs sales and cost
of sales figures will be offset on consolidation and ABCs intercompany receivable netted against GHIs
payable balance.
5
(13,500,000/ 144 per ).
10
IAS 39.74(a) allows either the full value of the option to be treated as the hedging instrument (in which
case there may be ineffectiveness due to changes in the options time value) or else only the intrinsic
value to be designated, in which case changes in time value are recorded directly in profit or loss. XYZ
decides to assess and measure the effectiveness of the hedge based on the changes in the intrinsic value of
the option, as measured by the spot foreign exchange rate.
The anticipated sale takes place on 30 J une 20X1, but in the amount of CAD1,300,000, CAD100,000 less
than expected.
The following tables summarise the key data:
Date Spot rate CAD per Fair value ()
6

1/1/20X1 1.40 32,000
31/3/20X1 1.45 30,000
30/6/20X1 1.50 45,688

Date Intrinsic value of option ()
7
Time value of option ()
6
Fair value of option ()
1/1/20X1 32,000 32,000
31/3/20X1 13,504
8
16,496 30,000
30/6/20X1 45,688
9
45,688

6
Derived from an option pricing model; amounts presented here are for purposes of illustration.
7
Strictly, the intrinsic value will be based on the spot rate only for what is termed an American option,
that can be exercised at any time. In contrast a European option, which can only be exercised at
maturity, will be valued using forward rates and the intrinsic value should then be discounted to the
present value. However, IAS 39 permits the hedge relationship to be based on the spot rate, so the
treatment shown in this example would be valid for a European option, as long as it is understood that the
intrinsic value is based on the spot rate rather than being the options true intrinsic value.
8
(CAD1,400,000/ 1.43) - (CAD1,400,000/ 1.45).
9
(CAD1,400,000/ 1.43) - (CAD1,400,000/ 1.50).
XYZs hedge documentation is as follows:
Risk management
The objective of the hedge transaction is to hedge cash flows related to the
downside foreign exchange risk associated with a highly probable sale
denominated in CAD.
Date of designation 1 J anuary 20X1
Hedging instrument Option to sell CAD1,400,000 on 30 J une 20X1 for 979,021 (1 : CAD1.43).
Hedged item The option is designated as a hedge of a highly probable sales transaction of
CAD1,400,000, forecast to occur on 30 J une 20X1.
How hedge
assessed
Because the critical terms of the option contract and the anticipated transaction
coincide (i.e., currency, notional amount, and timing), the intrinsic value of the
option is considered to offset completely any changes in the expected cash flows
associated with the anticipated transaction. Changes in the time value of the
option are excluded from the assessment of effectiveness, as permitted by IAS
39.74 (a). Therefore, the only potential remaining source of ineffectiveness of the
hedge relates to any decline in the credit rating of the counterparty to the option,
or the possibility that the forecast transaction will not occur in the amounts or at
the times anticipated, both of which will be monitored.
How hedge
measured
Effectiveness will be measured by comparing the change in the intrinsic value of
the option with the change in the value of the forecast CAD sales, measured at the
spot rate during the hedge period. If ineffectiveness occurs due to a decline in
the counterpartys credit rating, or a change in the amounts or timing of the
forecast transaction, it will be measured by the change in fair value.
Changes in time value of the option will be reflected directly in earnings.
XYZ would record the following journal entries:
DR CR
On 1 J anuary 20X1:
Purchased option 32,000
Cash 32,000
To record the cost incurred to purchase the option contract.

12

DR CR
Loss on hedging activities 15,504
10

To account for the change in fair value of the option contract, the change in
its time value and the change in its intrinsic value that is effective as a hedge
of the anticipated sales transaction (assuming that the CAD1,400,000 of sales
is still highly probable).

For the quarter ended 30 J une 20X1:
Loss on hedging activities 16,496
11

Separate component on equity 32,184
12

To account for the change in fair value of the option contract, the change in
its time value and the change in its intrinsic value that is effective as a hedge
of the anticipated sales transaction.

Cash 45,688
To record the cash received upon exercise of the option.
Accounts receivable 866,667
Sales 866,667
To account for the sales transaction, which is CAD100,000 less than
originally forecasted, at the prevailing spot exchange rate
(CAD1,300,000/1.5).

Sales 42,425
To reflect the effective component of the hedge as the hedged transaction
affects earnings.
13

10
32,000 (30,000 - 13,504)
11
0 (30,000 - 13,504)
12
45,688 - 13,504
13
(CAD1,300,000 / CAD1,400,000) x 45,688).

DR CR
Assuming that the CAD100,000 sales shortfall was not apparent any sooner
than 30 J une 20X1, the following entry would also be required to reflect the
amount of the over-hedge in the income statement:

Gain on option contract 3,263
To reflect the ineffective portion of the intrinsic value of the option contract
due to overhedging, at the date that the occurrence of the remaining
CAD100,000 of sales was no longer considered probable.

Effect of the
hedge on the
income
statement
The total amount of recorded sales will be 909,092 (866,667 +42,425) or
CAD1,300,000 / 1.43. XYZ was thus effective in hedging the anticipated sales
transaction at an exchange rate of CAD1.43 to the Euro. However, XYZ expensed
32,000 in option premium over the life of the hedge to achieve this objective,
partially offset by a 3,263 gain from the derivative which overhedged sales that
never materialised.
14
Once the receivable has been recognised, it would be separately
eligible for hedge accounting.
Examples of foreign currency fair value hedges
Example 4: Firm commitment hedged using a forward contract
Example 5: Hedge of changes in fair value of available-for-sale equity investments attributable to foreign
currency risk using a forward contract
Example 4: Firm commitment hedged using a forward contract
On 1 J anuary 20X1, XYZ SA enters into an agreement to purchase 1,000 watches for 5,000 Swiss Francs
(SF) per watch, to be delivered on 31 March 20X1. The contract meets the requirements of a firm
commitment. The resulting payable is expected to be settled on 30 April 20X1. On 1 February 20X1,
XYZ decides to hedge the foreign currency exposure enters into a forward contract to exchange
3,500,000 for SF5,000,000 on 30 April 20X1 (at a forward rate of SF1.429 : 1). This forward contract
is designated as a hedge of the firm commitment to purchase the watches on 31 March 20X1 and to settle
the balance owing on 30 April 20X1. Effectiveness will be assessed based on the forward rate.

14
Overhedging in this example was caused by an inaccurate projection of the number of units sold.
However, each unit that was sold was perfectly hedged by a pro-rata portion of the derivative.
14
IAS 39 permits a foreign currency hedge of a committed transaction to be treated either as a cash flow
hedge or a fair value hedge. The former treatment is likely to be less popular since it will result in
volatility in recorded equity. The following table summarises the key data:
Date Spot rate
SF per
Forward rate of
contract expiring
4/30/20X1 SF per
Fair value of
forward contract
(discounted at 6%) ()
Change in fair value of
forward contract
()
1/1/20X1 1.450
1/2/20X1 1.400 1.429
28/2/20X1 1.400 1.415 33,233 33,233
31/3/20X1 1.410 1.400 71,071 37,838
30/4/20X1 1.360 1.360 176,471 105,400
XYZs documentation of the hedging relationship is as follows:
Risk management
The objective of the transaction is to hedge the change in the fair value of the
firm commitment caused by foreign exchange fluctuations. The hedged risk is
the change in the SF forward rate against the Euro.
Date of designation 1 February 20X1
Hedging instrument Forward contract to buy SF5,000,000 at forward rate of SF1.429 for each Euro
on 30 April 20X1.
Hedged item The forward contract is designated as a hedge of the firm commitment to
purchase 1,000 watches at SF5,000 per watch on 31 March 20X1 and the
subsequent foreign currency exposure of the accounts payable in SF on 30
April 20X1. The hedge is accounted for as a fair value hedge, as allowed by
IAS 39.87.
How hedge
assessed
Because the critical terms (i.e., currency, notional amount, and timing) of the
forward contract and the firm commitment coincide, the hedge is considered to
completely offset changes in the fair value of the firm commitment attributable
to changes in forward SF exchange rates. Counterparty credit risk will be
continuously monitored.
How hedge
measured
Hedge effectiveness will be measured based on overall changes in the value of
the firm commitment, measured at the forward rate, compared to changes in the
fair value of the forward contract. Any changes in the fair value of the firm
commitment after the inception of the hedge will be reflected on the balance
sheet and through the profit or loss; changes in the fair value of the forward
contract will also be reflected in earnings.

The following journal entries would be recorded by XYZ:
On 1 J anuary 20X1, no entry is required because the firm commitment is not yet hedgedonly changes
in the fair value of firm commitments that are part of a fair value hedging relationship are recorded in the
financial statements.
On 1 February 20X1, no entry is required. The fair value of the firm commitment should only be
recorded when there is a change in fair value subsequent to the hedge designation date. Any changes in
the fair value of the firm commitment before designation date are not recorded. Further, the forward
contract has no value at its inception.
DR CR
For the month ended 28 February 20X1:
Gain on forward contract 33,233
To record change in fair value of forward contract.

Loss on firm commitment 33,233
Fair value of firm commitment 33,233
To record change in fair value of firm commitment. (Note: Only the
change in the fair value of the firm commitment since the hedge
inception (1 February 20X1) is recorded.)

For the month ended 31 March 20X1:
Forward contract: 37,838
To record change in fair value of forward contract.

Loss on firm commitment 37,838
To record change in fair value of firm commitment.

16

DR CR
Inventory 3,546,099
Accounts payable 3,546,099
To record purchase of inventory at the prevailing exchange rate at
31 March 20X1.
15

Inventory 71,071
To adjust inventory value to reflect the hedge of the firm commitment.

For the month ended 30 April 20X1:
To record the change in fair value of forward contract, continuing to reflect it
at fair value even after the hedging relationship has ended.

Loss on retranslation of accounts payable 130,372
Accounts payable 130,372
To remeasure the carrying amount of accounts payable at the prevailing
spot rate.
16

Accounts payable 3,676,471
Cash 3,676,471
To record payment of accounts payable.
17

Cash 176,471
To record net settlement of forward contract.

15
SF5,000,000/ 1.41
16
(SF5,000,000/1.36) - 3,546,099
17
SF5,000,000/1.36

Effectiveness
of the hedge
The ultimate settlement of the accounts payable after delivery of the watches was
designated as the hedged item, for the period the accounts payable was outstanding,
from 31 March to 30 April 20X1. The loss on the revaluation of the payable of
130,372 is offset by the gain from the forward contract of 105,400 during the month
of April. The inventory is carried at 3,475,028, 24,972 less than the final net cash
outflow of 3,500,000. XYZ experienced a net loss of 24,972 during April caused by
the convergence between the forward rate (upon which the derivatives fair value is
based) and the spot rate (upon which the accounts payable remeasurement is based).
Example 5: Hedge of changes in fair value of available-for-sale equity investments
attributable to foreign currency risk using a forward contract
J KL GbH acquires 100,000 shares of Yorkshire J ewellers plc for 1.00 per share on 1 J anuary 20X1, and
classifies the investment as an available-for-sale financial asset. Yorkshire J ewellers is listed on the
London Stock Exchange only and all transactions in the company are denominated in GBP. The
functional currency of J KL is the Euro. J KL decides to hedge the risk of currency fluctuations on this
available-for-sale asset over the next six months and enters into a forward contract to sell 100,000 on
30 J une 20X1, at an exchange rate of 0.62 per Euro (1.613 : 1). IAS 39.74 allows either changes in
the full fair value of the forward contract to be reflected in the hedge (in which case there should be
ineffectiveness) or only the effect of any changes in the spot price, in which case there should be no
ineffectiveness, but the difference between the spot and forward rate will be reflected in the profit or loss
over the life of the hedge.
The following table summarises the key data:
Date Share price () Spot rate per Forward rate of contract expiring 6/30/20X1 per
1/1/20X1 1.00 0.60 0.62
31/3/20X1 1.50 0.65 0.66
30/6/20X1 2.00 0.70 0.70

18
XYZs hedge documentation is as follows:
Risk management
The objective of the hedge transaction is to hedge the available-for-sale equity
security against exchange rate fluctuations for a period of six months. By
isolating and hedging the foreign currency risk, J KL seeks to accept only the
equity price risk of its holding in Yorkshire J ewellers.
Hedging instrument A forward contract to sell 100,000 on 30 J une 20X1, at an exchange rate of
0.62 per Euro.
Hedged item The forward contract is designated as a hedge of the changes in fair value of the
available-for-sale equity investment in Yorkshire J ewellers attributable to foreign
currency exchange risk.
How hedge
assessed
Hedge effectiveness will be assessed based on overall changes in the spot rate,
included in the changes in the fair value of the available-for-sale security,
compared to the original cost of 100,000 (or fair value if lower). Changes in the
difference between the forward rate and the spot rate are excluded from the
assessment of hedge effectiveness and will be recorded directly in earnings. No
other ineffectiveness is anticipated because the notional amount of the forward
contract coincides with the initial investment in the shares. Any variability in the
fair value of the shares below 100,000 will affect the assessment of hedge
effectiveness. If such a decline occurs, the hedge ratio will be adjusted.
Counterparty credit risk will be continuously monitored.
How hedge
measured
The forward contract will be carried at fair value with changes reflected directly
in the income statement. In addition, the portion of the change in fair value of the
hedged available-for-sale investment attributable to changes in the hedged foreign
exchange rate will be reflected directly in earnings. Over the life of the hedge, a
loss of 5,377 will be reflected in earnings based on the spot/forward difference
at inception ((100,000/0.60)-(100,000/0.62)).


Date Total
value of
shares
18

Value of
shares
remeasured
to Euros
19

Gain on
available-
for-sale
security
()
Cumulative
changes in
forward rate
()
Forward
contract fair
value
(discounted
at 6%) ()
Change
in spot
Change
in fwd
1/1/20X1 100,000 166,667
31/3/20X1 150,000 230,769 64,102 9,775
20
9,631 12,821 (3,190)
30/6/20X1 200,000 285,714 54,945 18,433
21
18,433 10,989 7,444

DR CR
On 1 J anuary 20X1, J KL would record the following journal entry:
Investment in available-for-sale financial asset 166,667
Cash 166,667
Initial investment to acquire Yorkshire J ewellers.
Before recording any journal entries for the quarter ended 31 March 20X1, J KL would have to perform
an analysis to determine what portion of any increase (or decrease) in the fair value of the Yorkshire
J ewellers investment related to changes in the equity price and what portion related to changes in
exchange rates. Therefore, J KL would prepare the following analysis:

Gain as a result of changes in the equity price
(150,000 - 100,000)/ 0.65)
76,923
Loss as a result of changes in foreign exchange rates
((100,000/ 0.65) - (100,000/ 0.60), measured at spot rate
(12,821)
Total gain 64,102

18
Number of shares x share price.
19
Total value of shares /spot rate.
20
(100,000/ 0.62) - (100,000/ 0.66).
21
(100,000/ 0.62) - (100,000/ 0.70).
20
As of 31 March 20X1, the fair value of the forward contract was 9,631. The difference between the
12,821 loss and 9,631 gain is the result of the change in the difference between the forward rate and
the spot rate and is excluded from the assessment of effectiveness. This excluded difference is accounted
for in earnings.
DR CR
The following journal entries would then be recorded by J KL at 31 March
20X1:

To account for the change in the equity price of the available-for-sale
investment.

Exchange loss on investment 12,821
To account for the change in the fair value of the available-for-sale
investment attributable to changes in the foreign exchange rate.


As at 30 J une 20X1, J KL would perform a similar analysis:

Gain as a result of changes in the equity price
(200,000 - 150,000)/ 0.70)
71,429
Loss as a result of changes in foreign exchange rates as measured by spot rates on the
original 100,000 balance
((100,000/ 0.70) - (100,000/ 0.65))
(10,989)
Loss as a result of changes in foreign currency as measured by spot rates on the
incremental 50,000 balance arising during the prior period
((50,000/ 0.70) - (50,000/ 0.65))
(5,495)
Total gain 54,945

In the quarter to 30 June 20X1, the fair value of the forward contract increases by 8,802 (18,433 - 9,631).
DR CR
The following journal entries would then be recorded by J KL at 30 J une
20X1:

To account for the change in the equity price of the available-for-sale asset.

Exchange loss on investment 10,989
To account for the change in the fair value of the investment in the available-
for-sale financial asset attributable to changes in the foreign exchange rate on
that part of the investment designated as the hedged item (i.e., the exchange
loss on the original 100,000 investment).

To account for the remaining change in fair value of the available-for-sale
financial asset not considered part of the designated foreign currency hedge
(i.e., the exchange loss on the incremental 50,000 equity appreciation that
occurred in the first quarter) in equity, since the investment is not a monetary
asset that would otherwise be retranslated through profit or loss.


Cash 18,433
To account for settlement of the forward contract.

22

Effectiveness
of the hedge
J KL, by isolating the unfavourable effects of the weakening of the British Pound
against the Euro and hedging that loss, was able to reflect a greater percentage of the
appreciation of the Yorkshire J ewellers equity investment in the separate component of
equity as part of the IAS 39 adjustment than if no hedge were in place. A cumulative
gain of 142,857 is recorded rather than the 119,047 (285,714 - 166,667) if no
forward contract had been taken out. A 5,377 loss was reflected in the income
statement related to the forward points (i.e., the spot/forward differential at inception)
of the forward contract.
Examples of hedges of foreign-currency-denominated assets or liabilities
Example 6: Fair value hedge of a fixed rate, foreign currency denominated loan converted into variable
rate, functional currency loan using a cross currency interest rate swap
Example 7: Fair value hedge of a fixed rate, foreign currency denominated zero coupon note converted
into fixed rate, functional currency note using a cross currency interest rate swap
Example 8: Cash flow hedge of a fixed-rate, foreign currency denominated zero coupon note converted
into fixed rate, functional currency note using a forward contract
Example 6: Fair value hedge of a fixed rate, foreign currency-denominated loan converted
into a variable rate, functional currency loan using a cross currency interest rate swap
MNO Incs functional currency is the USD. On 31 December 20X0, MNO borrows 100 million Euros for
a term of five years at an annual coupon of 5.68%.
Also on 31 December 20X0, MNO enters into a five-year cross-currency interest rate swap in which it
will receive fixed Euros at a rate of 5.68% on 100 million and pay floating USD LIBOR plus 0.536% on
$102 million. There will be a final exchange of principal at maturity of the contract based on the initial
$102:EUR100 spot relationship between the USD and the Euro (at maturity MNO will receive 100
million and pay $102 million). Both the debt and the swap will pay annual coupons on 31 December. The
company designates the cross currency interest rate swap as a fair value hedge of the changes in the fair
value of the loan due to both interest and foreign exchange rates.
The spot $/ foreign exchange rates, Euro LIBOR rates
22
, /$ basis swap spreads and one year USD
LIBOR on 31 December, each year over the life of the hedge are presented in the following table.
Although not required for the accounting treatment of the debt and derivative, these are the basis for the
valuations that are used in the accounting.

22
Assumes, for simplicity, that Euro LIBOR does not vary with tenor (ie,, that the forward yield curve is
flat).

31/12/X0 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
Spot $/ exchange
rate
1.0200 1.0723 1.0723 1.1273 1.1851 1.2458
LIBOR rate 5.160% 5.151% 5.040% 4.854% 4.480% N/A
Basis swap spread (0.02)% (0.02)% (0.02)% (0.02)% (0.02)% N/A
One-year $ LIBOR 6.00% 5.50% 6.00% 6.50% 7.00% N/A

MNOs hedge documentation is as follows:
Risk management
objective and nature of
risk being hedged
The objective of the hedge transaction is to hedge the changes in the fair value
of the foreign currency denominated debt relating to changes in foreign
currency exchange rates and the benchmark (Euro LIBOR) interest rate.
Date of designation 31 December 20X0
Hedging instrument A five-year cross currency interest rate swap in which the company will
receive fixed Euros at a rate of 5.68% on 100 million and pay floating USD
at LIBOR plus 0.536% on $102 million, with an exchange of the respective
notional amounts at maturity.
Hedged item The company designates the cross currency interest rate swap as a fair value
hedge of the changes in the fair value of the loan due to both interest rate risk
and foreign exchange risk.
How hedge
assessed
The hedge relationship is expected to be highly effective because the notional
amount of the cross currency interest rate swap coincides with that of the debt,
and all cash flows coincide between the debt and the swap. Meanwhile, Euro
LIBOR is deemed to be a component of the Euro interest rate on the debt.
Accordingly, no portion of the change in fair value of the cross-currency
interest rate swap is expected to be ineffective. Counterparty credit risk will be
How hedge
measured
In accordance with fair value hedge accounting methodology under IAS 39,
the change in fair value of the debt attributable to changes in Euro interest
rates will be calculated and then this adjusted value will be remeasured at spot
rates through earnings under IAS 21. The change in the fair value of the cross
currency interest rate swap is also recorded in earnings.

24
The changes in fair value of the debt attributable to changes in both Euro interest rates and spot foreign
exchange rates, and the values and changes in value (in USD) of the cross currency interest rate swap are
shown in the following table. To simplify the example, all yield curves are assumed to be flat,
throughout.
(in millions) 31/12/X0 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
A Spot exchange rate
($/)
1.0200 1.0723 1.0723 1.1273 1.1851 1.2458
B. Adjusted value of debt
()
23

(100.000) (100.032) (100.322) (100.567) (100.647) 0.0000
C. Carrying amount of
debt at spot rate ($)
(A*B)
(102.000) (107.265) (107.575) (113.366) (119.274)
D. Cumulative change in
value of debt ($102-C)
(5.265) (5.575) (11.366) (17.274)
E. Change in $ in carrying
amount of debt during
period ($)
(5.265) (0.310) (5.791) (5.908) 17.274
F. Fair value of cross
currency interest rate
swap($)
0.000 5.333 5.642 11.472 17.357
G. Change in fair value of
swap during period ($)
5.333 0.310 5.830 5.885 (17.357)

23
Present value of debt based on fixed-rate payments (5.68%) plus principal, discounted at current Euro
LIBOR rate plus initial spread of 0.52%. For example, at 31 December 20X1, the fair value of debt of
100.032m =5.68/(1+0.5151+.0052) +5.68/(1 +0.5151 +.0052)
2
+5.68m/(1+0.5151+.0052)
3
+
105.68m/ (1 +0.5151+.0052)
4
.
Changes in the carrying value of the debt and the swap are recognised immediately in earnings. Notice
that in the year 20X2, Rows (E) and (G) perfectly offset. This result occurred only because the spot
exchange rate did not change from 20X1 to 20X2.
DR CR
The following journal entries would be made by MNO in the first year:
Interest expense 6,156,720
24

Cash (paid to debt holders) 6,090,664
25

Cash (net payment on swap) 66,056
26

To record initial expense

Cross-currency swap 5,333,333
Foreign currency retranslation gain 5,230,000
27

Swap revaluation gain 103,333
28

To record the change in fair value of the cross-currency swap.

Foreign currency retranslation loss 5,230,000
27

Debt instrument 5,265,000
Debt revaluation loss 35,000
28

To record the change in fair value of the debt instrument.
To adjust carrying value of debt: first, for the effect of fair value hedge of interest rate risk, and second,
to reflect remeasurement of the newly adjusted debt carrying value at the new spot rate (Steps B and C in
the table above).
The journal entries for the other periods would be similar to the entries above.
Effect of the hedge on
the income statement
Interest expense, formerly fixed as applied to a foreign denominated principal,
has been converted through the effect of the fair value hedge to a USD LIBOR
based floating interest expense.

24
($102 x 6.036%)
25
100 x 5.68% x 1.073 (spot exchange rate).
26
($102 x 6.536%) - (100 x 5.68% x 1.73) million.
27
(100 x 1.0723 - 100 x 1.02)
28
$5,265,000 - $5,230,000
26
Example 7: Cash flow hedge of a fixed-rate, foreign currency denominated loan converted
into a fixed rate, functional currency loan using a cross currency swap
Company ABCs functional currency is the USD. On 1 J anuary 20X1, ABC borrows 100 million. The
loan has a term of five years and pays an annual coupon of 5.68%.
Also on 1 J anuary 20X1, ABC enters into a five-year swap in which it will receive fixed Euros at a rate
of 5.68% on 100 million and pay fixed USD at a rate of 6.536% on $102 million. There will be a final
exchange of principal on maturity of the contract based on the original $102:100 spot exchange rate.
Both the debt and the swap pay annual coupons on December 31.
ABC designates the cross-currency swap as a cash flow hedge of its exposure to changes in its functional
currency equivalent cash flows on the debt. (It would have to be a cash flow hedge since the company is
seeking to eliminate its exposure to variability in the local currency (principal and of interest payments).
In general, the conversion of fixed to fixed, or floating to fixed, are cash flow hedges, while fixed to
floating or floating to floating swaps are fair value hedges).
The spot foreign exchange rates for USD/EUR over the life of the hedge are as follows:
1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
Spot $/ exchange rate 1.0200 1.0723 1.0723 1.1273 1.1851 1.2458
ABCs hedge documentation is as follows:
Risk management
The objective of the transaction is to hedge the changes in the cash flows of the
foreign currency denominated debt related to changes in foreign currency
exchange rates in order to fix the functional currency cash flows.
Hedging instrument A five-year cross currency swap in which the company will receive fixed Euros at
a rate of 5.68% on 100 million and pay fixed USD at 6.536% on $102 million. In
addition, the agreement requires an exchange of the notional amounts at maturity.
Hedged item The company designates the cross-currency swap as a cash flow hedge of the
changes in the cash flows of the loan resulting from foreign currency risk.
How hedge
assessed
Because the notional amount of the cross-currency swap equals that of the debt,
and all cash flow dates and interest rates coincide between the debt and the
swap, it is concluded that there should be no ineffectiveness in the hedge design.
However, every period the company will assess counterparty credit risk, and the
continued probability of the hedged cash flows as to amount and timing.
How hedge
measured
Ineffectiveness will be measured using the hypothetical derivative method.
This method compares the change in fair value of the designated hedging
instrument to the change in fair value of a hypothetical derivative that has terms
that exactly match the critical terms of the hedged item. Because the notional
amount of the cross-currency swap equals that of the debt, and all cash flow
dates and interest rates coincide between the debt and the swap, the actual
hedging instrument being used in this case is the same as the hypothetical
swap with exactly matching terms.
The fair values (in USD) of the /$ cross currency swap (which equals the hypothetical /$ cross-
currency swap), the ineffectiveness of the hedge recognised in earnings, and the balance initially added to
the separate component of equity for each of the years ended 31 December are as follows:
(in $ millions) 1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
Fair value of actual swap
29
3.544 5.642 12.401 18.310 22.580
Ineffectiveness
30

Change in period (to equity) 3.544 2.098 6.759 5.909 4.270
The change in the carrying amount of the foreign-currency-denominated debt due to changes in spot
exchange rates each period is as follows:
(in $ millions) 1/1/X1 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
Debt remeasured at spot
exchange rates
(102.000) (107.230) (107.230) (112.727) (118.507) (124.580)
Cumulative change in
carrying value of debt
(5.230) (5.230) (10.727) (16.507) (22.580)
Change in carrying value
of debt in period
(5.230) (5.497) (5.780) (6.073)

29
As noted above, the actual swap is identical to a hypothetical swap that would be used.
30
There is no ineffectiveness in this example as a result of the application of the hypothetical
derivative method. If there were differences in the fair values of the actual swap and the hypothetical
swap caused by differences in critical terms between the actual swap and a perfect hypothetical swap, the
separate component of equity would be adjusted to an amount equal to the lesser of the cumulative
change in the fair value of the actual swap or the cumulative change in fair value of the hypothetical
swap. Any additional amount necessary to record the actual swap at fair value would be reflected as
ineffectiveness in earnings.
28
The change in the carrying value of the debt in each period is recognised immediately in earnings through
the remeasurement process in accordance with IAS 21, The Effects of Foreign Exchange rates (as
amended March 2004) (IAS 21). IAS 39 provides that an offsetting portion of the separate component
of equity balance attributable to changes in the spot exchange rates is also immediately reclassified into
earnings.
The following table shows the adjustments to the separate component of equity (SCE) over the period:
(in $ millions) 31/12/X1 31/12/X2 31/12/X3 31/12/X4 31/12/X5
Change in fair value of actual swap
initially recorded in SCE
3.544 2.098 6.759 5.909 4.270
Reclassification to earnings to offset loss
on retranslation of debt
(5.230) (5.497) (5.780) (6.073)
Net change in SCE during period (1.686) 2.098 1.262 0.129 (1.803)
SCE balance at beginning of period (1.686) 0.412 1.674 1.803
SCE at end of period (1.686) 0.412 1.674 1.803
The change in the carrying value of the debt from remeasurement is recognised immediately in earnings,
as is the reclassification from the separate component of equity. The income statement effect, including
interest expense, is set out below for each year ended 31 December:
(in $ millions) 20X1 20X2 20X3 20X4 20X5
Interest expense
31
(6.667) (6.667) (6.667) (6.667) (6.667)
Loss on debt from retranslation (5.230) (5.497) (5.780) (6.073)
Hedge gain reclassified from SCE 5.230 5.497 5.780 6.073

31
Interest expense is calculated based on paying fixed 6.536% on USD 102 million from the cross-
currency swap. The interest paid at 5.68% on the EUR 100 million debt is completely offset (both in cash
flow and IAS 21 remeasurement effects) by the 5.68% received on EUR 100 million under the cross-
currency swap.
Notice that in 20X2, there were no revaluation gains or losses and no hedge gains or losses because the
spot exchange rate did not change from 20X1 to 20X2.
$DR $CR
J ournal entries for the first year to 31 December 20X1:
32

Cash (paid to creditor) 6,090,664
33

Cash (paid to swap counterparty) 576,056
34

Retranslation loss 5,230,000
Foreign currency denominated debt 5,230,000
To adjust carrying amount of foreign currency denominated debt
due to change in the spot rate.

Separate component of equity 1,686,000
Retranslation gain 5,230,000
To record fair value of cross-currency swap in the balance sheet
with entries to the separate component of equity and a
reclassification to income to offset retranslation of hedged debt.

J ournal entries for the second year to 31 December 20X2:
Interest expense 6,666,720,
35

36

34

To record interest expense based on swap fixed rate.
No entry is made to retranslate the debt as the spot exchange rate has not changed since 31 December 20X1.

32
(USD 102 x 6.536%)
33
(EUR 100 x 5.68% x 1.0723)
34
((USD 102 x 6.536%) (EUR 100 x 5.68% x 1.0723))
35
(USD 100 x 6.536%)
36
(EUR 100 x 5.68% x 1.0723)
30

$DR $CR
To record change in fair value of cross-currency swap in the balance sheet
with an entry to the separate component of equity.

J ournal entries for the third year on 31 December 20X3:
37

38

39

To record interest expense based on actual swap fixed rate.

To adjust carrying amount of foreign currency denominated debt due to
change in the spot rate.

Transaction gain 5,497,000
To record change in fair value of cross-currency swap in the balance sheet
with entries to the separate component of equity and a reclassification to
income to offset the revaluation of the hedged debt.

37
(USD 102 x 6.536%)
38
(EUR 100 x 5.68% x 1.1273)
39
((USD 102 x 6.536%)(EUR 100 x 5.68% x 1.1273))

$DR $CR
J ournal entries for the fourth year to 31 December 20X4:
40

Cash (received from swap counterparty) 64,648
41

42


To adjust carrying amount of foreign currency denominated debt due to
change in the spot rate.

To record change in fair value of cross currency swap in the balance sheet
with entries to the separate component of equity and a reclassification to
income to offset the revaluation of the hedged debt.

J ournal entries for the fifth year to 31 December 20X5:
43

Cash (received from swap counterparty) 409,424
44

45


40
(USD 102 x 6.536%)
41
((USD 102 x 6.536%) - (EUR 100 x 5.68% x 1.1851))
42
(EUR 100 x 5.68% x 1.1851)
43
(USD 102 x 6.536%)
44
((USD 102 x 6.536%) - (EUR 100 x 5.68% x 1.2458)),
45
(EUR 100 x 5.68% x 1.2458),
32

$DR $CR
To adjust carrying amount of foreign currency-denominated debt due to
changes in the spot rate.

To record change in fair value of cross currency swap in the balance
sheet with entries to the separate component of equity and a
reclassification to income to offset translation loss on hedged debt prior
to termination of swap.

Cash (received from swap counterparty) 22,580,000
To record settlement of debt and cross-currency swap.

Effect of the
hedge on the
income
statement
Since the hedge was considered completely effective as a result of using the
hypothetical derivative method, there is no hedge ineffectiveness recognised in
earnings. The transaction loss on remeasuring the debt is completely offset by the
gains reclassified from the separate component of equity. The resulting income
statement effect for each period is simply the interest expense fixed by the actual swap.
There are no fluctuations in the income statement as a result of changes in foreign
currency rates.
Example 8: Cash flow hedge of a fixed-rate, foreign-currency-denominated zero-coupon note
converted into a fixed-rate, functional currency note using a forward contract
On 1 J uly 20X1, DEF, a Swiss Franc (SF) functional currency entity, issues a zero coupon debt
instrument denominated in Euros with a notional amount of 154,767 for 96,098, that will mature on
30 J une 20X6. The interest rate implicit in the debt is 10%46. On 1 J uly 20X1, 96,098 is equivalent to
SF100,000, based on the spot exchange rate of 1.0406. On 1 J uly 20X1, DEF enters into a forward
contract to buy 154,767 in five years at the forward exchange rate of 1.0901 (Swiss Franc cost
SF168,719) and designates the forward contract as a hedge of the variability of the SF functional
currency equivalent cash flows on the debt. The initial spot/forward difference, or forward points, total
SF68,719 over the five years and implies a SF interest rate of 11.028% annually for the five year
period
47
. Because the currency, notional amount and maturity of the debt and the forward contract match,
DEF concludes that no ineffectiveness will result.
The market data, period end balances, and journal entries fromcash flow hedge accounting are shown below:
Date Spot rate
SF/
48

Forward
rate SF/
49

Change in
forward
rates
50

Carrying
amount of
debt in
51

Carrying
amount of
debt
retranslated
at spot rate
(SF)
Debt
accreted at
implicit
interest rate
(SF)
Forward
contact fair
value
(SF)
52

30/6/X1 1.0406 1.0901 0.0000 96,098 100,000 100,000
30/6/X2 1.1000 1.1850 0.0949 105,708 116,278 111,028 11,199
30/6/X3 1.1000 1.1631 0.0730 116,279 127,906 123,272 9,217
30/6/X4 1.1000 1.1417 0.0516 127,906 140,697 136,867 6,969
30/6/X5 1.1000 1.1207 0.0306 140,697 154,767 151,960 4,419
30/6/X6 1.1100 1.1100 0.0199 154,767 171,791 168,719 3,072
** Numbers are rounded to simplify calculations

46
96,098 (1.10)
5
=154,767
47
The fifth root of 168,719/100,000 is 1.11028.
48
As a simplistic assumption, the spot rate does not change during 20X2-20X5 to illustrate and highlight
the effect of the imputed interest rate charges.
49
The forward rate at 30 J une 20X1, is calculable from the market five-year interest rates for each of the
two currencies: 1.0901 =1.0406[(1 +0.11028)
5
/(1 +0.10)
5
]
50
Current forward rate less initial forward rate (i.e., 20X3 is calculated as 1.1631-1.0901 =0.073)
51
Carrying amount accretes at a 10% effective interest rate each year.
52
The fair value of the forward is calculated by comparing the current forward rate for 30 J une 20X6 to
the contracted forward rate, and discounting the difference at a risk free rate, assumed to be 7% in all
periods.
34
DEFs documentation of the hedge is as follows:
Risk management
The objective of the hedge transaction is to hedge the risk of variability in
functional currency equivalent cash flows associated with the foreign currency
denominated loan due to changes in forward rates.
Date of designation 1 J uly 20X1
Hedging instrument Forward contract to buy 154,767 in five years at the forward rate of 1.0901 (SF
cost SF168,719).
Hedged item The forward contract is designated as a hedge of the changes in the cash flows
relating to the changes in foreign currency forward rates relating to the debt.
How hedge
assessed
Since the critical terms of the derivative and the hedged debt are identical
(timing and amount of all cash flows), the change in value of the derivative
will be considered to completely offset the changes in the hedged cash flow.
Accordingly, there should be no ineffectiveness in the hedge design. However,
every period the company will assess counterparty credit risk, and the continued
probability of the hedged cash flows as to amount and timing.
How hedge
measured
Over the life of the hedge, interest expense of SF68,719 (the amount of the
forward points) will be reflected in interest expense based on the interest rate
implied in the forward contract; other changes in the fair value of the forward
contract are attributable to spot fluctuations and are effective as a hedge of the
ultimate payable in . Hedge ineffectiveness is measured by use of the
hypothetical derivative method; however, the actual hedging instrument being
used in this case is the same as the hypothetical forward with exactly matching
terms that should be used. Accordingly, no ineffectiveness is anticipated.

The following illustrates the accounting (debits/(credits)) for the transaction during its life :
30 J une Cash
(SF)
Forward
(SF)
Debt
(SF)
SCE
(SF)
Interest
expense
(SF)
Translation
loss (gain)
(SF)
20X1 Issue debt 100,000 (100,000)
20X2 Accrue interest
on debt
(10,286)
53
10,286
20X2 Revalue debt
(including
accrued
interest) to spot
rate
(5,993) 5,993
20X2 Mark forward
to FV
11,199 (5,948) 742 (5,993)
100,000 11,199 (116,279) (5,948) 11,028
on debt
(11,628)
54
11,628
20X3 Mark forward
to FV
(1,982) 1,366 616
100,000 9,217 (127,906) (4,582) 23,272
on debt
(12,791)
54
12,791
20X4 Mark forward
to FV
(2,247) 1,443 804
100,000 6,969 (140,697) (3,139) 36,867
on debt
(14,070)
54
14,070
20X5 Mark forward
to FV
(2,550) 1,526 1,024
100,000 4,419 (154,767) (1,613) 51,961
on debt
(15,617)
54
15,617
20X6 Revalue to debt
to spot
(1,407) 1,407
20X6 Mark forward
to FV
(1,347) 1,613 1,141 (1,407)
100,000 3,072 (171,791) 68,719
** Numbers rounded to simplify calculations.

53
( 96,098 x 10% x 1.0703 SF/)
54
(Prior year balance x 10% interest x foreign currency rate of 1.1)
36

SFDR SFCR
J ournal entries at the inception of the loan on 1 J uly 20X1:
Cash 100,000
Debt 100,000
To record Euro zero coupon note in SF.
No entry is required for the forward contract, which has a fair value of
zero.

J ournal entries for the year to 30 J une 20X2:
Interest expense 10,286
Debt 10,286
To accrue interest and translate at period end spot rate.

Retranslation loss 5,993
Debt 5,993
To record translation loss on the debt.

To record the derivative at fair value.

Interest expense 742
Retranslation loss 5,993
To reclassify an amount out of the separate component of equity (1) to increase interest expense to the
Euro yield of 11.028% and (2) to offset the retranslation loss on the debt.
Comparable entries would be recorded for the remaining four years of the life of the debt based on the
amounts indicated in the table, above.
Effect of the
hedge on the
income
statement
Interest expense totalling SF68,719 is recognised on an effective interest basis over
the life of the five year hedge. The SF68,719 is equivalent to the original spot:forward
difference at 1 J uly 20X1. The changes in the spot:forward difference attributable
solely to currency risk (after stripping out the effective interest portion) are recorded in
a separate component of equity and reclassified to income to offset any income
statement effects of remeasuring the zero coupon debt instrument at spot rates.

Examples of hedges of net investments in foreign operations
The following examples illustrate the accounting for net investment hedges:
Example 9: Accounting for a net investment (no hedge accounting)
Example 10: Accounting for a net investment (with hedge accounting and no ineffectiveness)
Example 11: Accounting for a net investment (with hedge accounting with ineffectiveness present)
Example 9: Accounting for a net investment (no hedge accounting)
RST plc (with a GBP functional currency) has a German subsidiary, Ludwig Industries, that uses the
Euro as its functional currency. RST acquired its 100% interest in Ludwig on 1 J uly 20X1, for
2,000,000 when the exchange rate was 1.50 per . During the year RST charges Ludwig 1 million in
service charges, which are recorded by Ludwig at 1,750,000 (the average spot rate for the year) and
which are still not paid by the year end. Below are the balance sheets of RST and Ludwig as of 1 J uly
20X1, and 31 December 20X1.
1 J uly 20X1 (Date of Acquisition) 31 December 20X1*
Balance Sheets RST () Ludwig () RST () Ludwig ()
Assets 10,000,000 6,000,000 14,000,000 10,000,000
Investment in Ludwig 2,000,000 2,000,000
Intercompany AccountLudwig 1,000,000
12,000,000 6,000,000 17,000,000 10,000,000
Liabilities 8,000,000 3,000,000 8,000,000 3,500,000
Intercompany AccountRST 1,750,000
Equity 4,000,000 3,000,000 9,000,000 4,750,000
12,000,000 6,000,000 17,000,000 10,000,000
Net income for the six months ending 31 December
20X1
5,000,000 1,750,000
* Prior to currency related closing journal entries and consolidation by RST.

38
The applicable exchange rates are as follows:
per
Spot rate at 7/1/20X1 1.50
Twelve month forward rate at 7/1/20X1 1.54
Average spot rate from 7/1/20X1 to 12/31/20X1 1.75
Spot rate at 12/31/20X1 2.00
Six month forward rate at 12/31/20X1 2.02

Net Investment-Initial Acquisition
The spot rate at the date of the acquisition should be used initially to remeasure Ludwigs accounts to the
functional currency of RST. The balance sheets below reflect the initial entries:
Balance sheets
1 J uly 20X1
Ludwig () Spot rate Ludwig () RST () Consolidation
adjustments ()
Consolidated
balance sheet ()
Assets 6,000,000 1.50 4,000,000 10,000,000 14,000,000
Investment in
Ludwig
2,000,000 (2,000,000)
Total 6,000,000 4,000,000 12,000,000 (2,000,000) 14,000,000
Liabilities 3,000,000 1.50 2,000,000 8,000,000 10,000,000
Equity 3,000,000 1.50 2,000,000 4,000,000 (2,000,000) 4,000,000
Total 6,000,000 4,000,000 12,000,000 (2,000,000) 14,000,000

Net InvestmentTranslation as of 31 December 20X1
If RST decided not to hedge any of the foreign currency exposures, the consolidated balance sheet as of
31 December 20X1 would be as follows:
Balance sheets
31 December 20X1
Ludwig * () Spot
Rate
Ludwig
()
RST () Consolidation
adjustments ()
Consolidated
balance sheet ()
Assets 10,000,000 2.00 5,000,000 14,000,000 19,000,000
Investment in
Ludwig
2,000,000 (2,000,000)
Intercompany
accountLudwig
1,000,000 (1,000,000)
Total 10,000,000 5,000,000 17,000,000 (3,000,000) 19,000,000
Liabilities 3,500,000 2.00 1,750,000 8,000,000 9,750,000
Intercompany
account
2,000,000 2.00 1,000,000 (1,000,000)
Equity 3,000,000 1.50 2,000,000 4,000,000 (2,000,000) 4,000,000
Separate
component of
equity
translation loss
(607,143) (607,143)
Profit or loss
current year
1,750,000 1.75 1,000,000 5,000,000 6,000,000
Profit or loss
retranslation
(250,000) 1.75 (142,857) (142,857)
Total 10,000,000 5,000,000 17,000,000 (3,000,000) 19,000,000
* After currency related closing entries.
As of 31 December 20X1 the carrying amount of the intercompany account (prior to remeasurement) was
1,750,000 in Ludwigs books. However, because the intercompany account is denominated in GBP,
Ludwig still has to remeasure this balance at the end of the reporting period.
Carrying amount of intercompany account (prior to remeasurement) 1,750,000
Remeasure intercompany account at year end spot rates (1,000,000 * 2.00) 2,000,000
Exchange loss included in net earnings of Ludwig (250,000)
Exchange loss translated using average spot rate as part of the consolidation
process in RST (250,000/ 1.75)
(142,857)
The effect is to record an exchange loss of 142,857 in the consolidated income statement.
40
Initial net investmentAt 31 December 20X1, the initial net investment should be accounted for in
accordance with IAS 21. This Standard requires that equity accounts be translated at historical exchange
rates and that assets and liabilities be translated at the current spot rates. This translation process will
expose the company to foreign currency risk between the historical and current rates. Any gains or losses
associated with this risk are recognised in a separate component of equity.
The exchange loss associated with the initial net investment as of 31 December 20X1, will be:

Net assets translated at spot rates as of 31 December 20X1
(3,000,000 / 2.00 ) 1,500,000
Initial investment translated at historical rates
(3,000,000 / 1.50) 2,000,000
Translation loss (500,000)
The 500,000 translation loss should be recorded in a separate component of equity as foreign currency
translation.
Net income for the six monthsThe net income for Ludwig after taking into account intercompany
exchange loss is:

Net income before exchange loss 1,750,000
Exchange loss relating to intercompany account (250,000)
Net income 1,500,000
Because the loss is accounted for in the income statement of Ludwig, it should also be accounted for in
the consolidated income statement. The net income is translated at the average spot rate whereas the
related assets are converted at the year end spot rate. This creates an inherent currency risk between the
year end and average exchange rates.

Net assets arising from net income translated at the spot rate as of 31/12/20X1
(1,500,000 / 2.00)
750,000
Net income translated at average exchange rate (1,500,000 / 1.75) 857,143
Translation loss related to net income (107,143)
The net effect of the exchange rate fluctuation is a loss of 607,143 (500,000 +107,143) that is
recorded in the separate component of equity as foreign currency translation.
Example 10: Accounting for a net investment (with hedge accounting and no ineffectiveness)
Assume the same fact pattern as Example 9, except that RST decided on 1 J uly 20X1, to limit its foreign
currency exposure as it relates to the initial net investment, by entering into a forward contract to sell
5,000,000 at a forward rate of 1.54 (:) in 12 months and to designate it, after taking account of tax at a
rate of 40%, as a hedge of the net investment.
RSTs hedge documentation is as follows:
Risk management
The objective of the hedge transaction is to protect the net investment in the
foreign operation, on an after-tax basis, against adverse changes in the forward
exchange rate.
Hedging instruments Forward contract to sell 5,000,000 at forward rate of 1.54 to the on 30 J une
20X2.
Hedged items The forward contract is designated as an after tax hedge of the net investment
opening balance as of 1 J uly 20X1.
How hedge
assessed
Hedge effectiveness will be assessed based on overall changes in fair value of
the forward contract (that is, based on changes in forward rates) on an after-tax
basis. Because the critical risks of the forward contract and the net investment
coincide, there should be no ineffectiveness. Counterparty credit risk will be
How hedge
measured
The hypothetical derivative method will be used to measure hedge effectiveness.
Any difference between the change in fair value of the actual derivative and the
hypothetical derivative will be reflected in earnings. However because the actual
derivative coincides with the hypothetical derivative, there should be no hedge
ineffectiveness.

At 1 J uly 20X1, the fair value of the forward contract was zero. As of 31 December 20X1, the exchange
rate was 2.00 Euros to the and the six-month forward rate was 2.02. The fair value of the forward
contract entered into would then be:

GBP receivable at six-month forward rate as of 31/12/20X1 (5,000,000 / 2.02) 2,475,247
GBP receivable on terms of forward contract (5,000,000 / 1.54) 3,246,753
Difference between forward contract and forward rates 771,506
Fair value of forward contract (771,506 discounted at 6%) 749,353
Less: Tax effect (40%) (299,741)
Fair value, net of tax 449,612

42
RST has designated this forward contract as a hedge of the initial net investment and there should be no
ineffectiveness. IAS 39 requires that such a hedge is accounted for as follows:
a) the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is
recognised directly in equity through the statement of changes in equity; and
b) the ineffective portion is recognised in profit or loss.
Any gain or loss on the hedging instrument relating to the effective portion of the hedge that has been
recognised directly in equity is recognised in profit or loss on disposal of the foreign operation.
DR CR
The journal entry at 31 December 20X1 will be as follows:
Forward contract (fair value) 749,353
Deferred tax 299,741
To account for the effect of hedge of net investment.
(* Assuming that the gain or loss on the forward contract is taxed only on settlement)
To summarise the retranslation of the exposure and the related hedge:

The initial translation loss 500,000
Gain on forward contract hedge (net of tax) 449,612
Net loss foreign currency translation 50,388
Translation of net income not hedged 107,143
Total effect of foreign currency translation 157,531
The hedge was not 100% effective in offsetting all the changes in the foreign currencies because of the
difference between the spot and forward exchange rates. This will typically be the case because the
derivative is required to be measured at fair value while the net investment is measured at the spot
exchange rate.
Effect of the hedge on the
income statement
The above hedge (after tax) offsets the 500,000 translation loss
accounted for in the foreign currency translation by 449,612.
Example 11: Accounting for a net investment (with hedge accounting with ineffectiveness
present)
Assume the same fact pattern as Example 9 except that RST decided on 1 J uly 20X1, to limit its foreign
currency exposure as it relates to the initial net investment by using a forward contract in Swedish Krona
(SK) to hedge the exposure. Assume that the relationship of the Krona and the Euro to the GBP is
demonstrated to be highly correlated and the Swedish Krona is expected to be effective in offsetting
changes in value attributable to the hedged risk during the period that the hedge is designated.
Accordingly, RST entered into a forward contract to sell SK100,000,000 (assuming a tax rate of 40%) at
a forward rate of SK31.2 in 12 months and designated it as a hedge of the net investment.
The applicable exchange rates are as follows:
/ SK/
Spot rate at 7/1/20X1 1.50 30.00
Twelve-month forward rate at 7/1/20X1 1.54 31.20
Average spot rate from 7/1/20X1 to 12/31/20X1 1.75 N/A
Spot rate at 12/31/20X1 2.00 40.20
Six-month forward rate at 12/31/20X1 2.02 40.60

44
RSTs hedge documentation is as follows:
Risk management
objective and nature of
risk being hedged
The objective of the hedge transaction is to protect the net investment in the
foreign operation against adverse changes in forward exchange rates.
Hedging instruments Forward contract to sell SK100,000,000 (tax rate 40%), at forward rate of
SK31.2 for each GBP on 30 J une 20X2. It is expected that changes in the
Euro and Swedish Krona will be highly correlated as they relate to the GBP.
Hedged items The forward contract is designated as a hedge of the net investment opening
balance as of 1 J uly 20X1.
How hedge
assessed
Hedge effectiveness will be assessed on the dollar offset method by
comparing changes in the net payments that will be indicated by the
respective forward curves over the hedge horizon for the Swedish Krona
compared to the Euro. Counterparty credit risk will be continuously
monitored. The relationship of the SK and the Euro to the GBP going
forward will be tested to ensure it remains highly correlated
How hedge
measured
The amount of hedge ineffectiveness recognised in earnings will be measured
by comparing the change in fair value on an after-tax basis of the Krona
forward contract with the change in fair value after tax of a hypothetical
Euro forward contract for 5,000,000; that is, based on changes in forward
rates. The hypothetical forward contract will have a maturity that matches
the maturity of the actual derivative designated as the net investment hedge.
At 1 J uly 20X1, the fair value of the forward contract was zero. As of 31 December 20X1, the Krona
exchange rate was SK40.2 to the pound and the six-month forward rate was SK40.6. The fair value of the
forward contract would then be:

GBP receivable at the six-month forward rate as of 12/31/20X1 (SK100,000,000 / 40.6) 2,463,054
GBP receivable under the terms of forward contract (SK100,000,000 / 31.2) 3,205,128
Difference between forward contract and forward rate 742,074
Less: tax effect (40%) (288,307)

The hypothetical Euro forward contract, that is the basis for determining hedge effectiveness, will be a
forward sale of 5,000,000 on 1 J uly 20X1, at a forward exchange rate of 1.54. At 31 December 20X1,
the six-month Euro forward rate is 2.02. The fair value of the hypothetical Euro forward contract would be:

GBP receivable at the six-month forward rate as of 31/12/20X1 (5,000,000 / 2.02) 2,475,247
GBP receivable under the terms of forward contract (5,000,000 / 1.54) 3,246,753
Difference between forward contract and forward rates 771,506
Less: Tax effect (40%) (299,741)
As expected, the change in the fair value of the Krona forward contract was highly correlated (432,459/
449,612 =96%) with the change in the fair value of the hypothetical Euro forward contract.
The amount of hedge ineffectiveness required to be recognised in earnings should be measured by
comparing the change in fair value of the Krona forward contract with the change in fair value of the
hypothetical Euro forward contract.

Increase in fair value of Krona forward contract 432,459
Increase in fair value of hypothetical Euro forward contract 449,612
Ineffectiveness (loss) to be accounted for in earnings (17,153)

DR CR
The journal entries would be as follows:
Foreign currency translation component of equity 720,766
Hedge ineffectiveness 17,153
Deferred tax 288,307
Foreign currency translation 449,612
To account for the FCA forward contract designated as a hedge of the
investment.

46
To summarise the result of the exposure and the related hedge:

The initial translation loss 500,000
Gain on forward contract hedge (432,459)
Ineffective portion of hedge (offsetting entry to earnings) (17,153)
Net lossforeign currency translation 50,388
Loss on net income not hedged 107,143
Total effect on foreign currency translation 157,531
The difference between the fair value of the hypothetical forward contract and the changes in the net
investment would be recorded in the foreign currency translation component of equity (ie, the 50,388 in
the above example). Any difference between the change in fair value (after tax) of the hypothetical
forward contract and the actual hedging derivative would be recognised in earnings (ie,, the 17,153 in
above example). The ineffectiveness in a net investment hedge should be recognised in earnings for both
overhedges and underhedges and is determinable independently of whether a gain or loss arises with
respect to the entire derivative contract. Similar to Example 10 above, the 50,388 represents the
difference between the forward rate of the hypothetical Euro forward contract and the spot rate.
Consequently, regardless of the hedging strategy selected (Example 9 or 10), the same 50,388 would
have been accounted for in equity. However, in this example, an additional 17,153 would have been
recognised in earnings because the Krona and the Euro were not perfectly correlated as they relate to the
GBP.
Effect of the hedge on
the income statement
The above hedge offsets the translation loss accounted for in the foreign
currency translation by 449,612. However, since the tandem currency
(Swedish Krona) was not 100% correlated with the Euro, 17,153 of hedge
ineffectiveness was accounted for in earnings.


If you would like to discuss any of these proposals in more detail, please contact your normal Ernst &
Young contact or:
Tony Clifford London +44 (0)20 7951 2250
Neville Gray London +44 (0)20 7951 1261
Melinda Evans London +44 (0)20 7980 0108
Steve Parkinson London, On-Call Consulting +44 (0)20 7951 3976
Michiel van der Lof Amsterdam +31 20 546 6030
J oost Hendriks Amsterdam +31 20 546 6790
George de Meris Amsterdam +31 20 549 7240
Bernard Roeders Amsterdam +31 20 549 7451
Eric Tarleton Bahrain +973 1753 5455
Roland Ruprecht Bern +41 58 286 61 87
J ean-Francois Hubin Brussels +32 2 774 92 66
Marja Tikka Helsinki +358 9 1727 7236
Pivi Virtanen Helsinki +358 9 1727 7533
Keith Pogson Hong Kong +852 2849 9227
J ames Luke J ohannesburg +27 11 772 3164
Thierry Bertrand Luxembourg +352 42 22 33 8845
Bernard Lhoest Luxembourg +352 42 22 33 8315
Wilson Tan Manila +632 894 8127
J osephine Abarca Manila +632 894 8317
Gianpiero Tedesco Milan +39 02 7221 2451
Mauro Castelli Milan +39 02 7221 2544
Avet Mirakyan Moscow +7 095 938 6667
Ken Marshall New York +1 212 773 2279
Lars Pettersen Oslo +47 24 00 25 45
Bernard Heller Paris +33 1 46 93 73 68
Francoise Bussac Paris +33 1 55 61 01 65
Laure Guegan Paris +33 1 55 61 08 25
Michaela Kubyova Prague +420 225 335 608
Leo van der Tas Rotterdam +31 10 406 8114
Wilson Woo Singapore +65 6428 6750
Peter Wallace Singapore +65 6428 6877
Winston Ngan Singapore +65 6428 6918
Anna Peyron Stockholm +46 8 520 593 81
Klas Wiberg Stockholm +46 8 520 594 14
Steffen Kuhn Stuttgart +49 711 9881 14063
Mark Seddon Sydney +61 2 9248 4351
Lynn Kraus Sydney +61 2 9248 4244
Ambrogio Virgilio Turin +39 01 1516 1611
Toyohiro Fukata Tokyo +81 3 3503 2164
Lynda Tomkins Warsaw +48 22 557 8902
Piotr Gajek Warsaw +48 22 557 7488
Pawel Preuss Warsaw +48 22 557 7530
Andreas Loetscher Zurich +41 58 286 42 26
J ohn Alton Zurich +41 58 286 42 69

www.ey.com/ifrs ERNST & YOUNG
2005 EYGM Limited.
All Rights Reserved.

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