I need your kind opinion on the following two accounting treatments based on the relevant paragraphs from the IASs/IFRSs:
1- If we are having a group of assets dominated in a foreign currency and on daily basis these assets are getting revalued using the daily FX spot/closing rate and the difference goes to the FX P&L GL.
These assets are hedged by FX Forward Liabilities the in the same currency which is transacted on an OTC basis with a counterparty (but this is of course transacted and agreed upon with the treasurer considering the forward pricing metrics) and as well this liability is revalued on daily basis using the daily FX spot/closing rate the difference goes to P&L as well.
The FX P&L GL.
The P&L of the Assets and the Liabilities is netted off ending up with zero or immaterial amounts.
? Is the practice of using spot FX closing rates to revalue FX Forward Liabilities (i.e. the hedging instrument) likewise the Assets (i.e. the hedged items) is OK based on the IASs/IFRSs?
? What are the paragraphs of the relevant IASs/IFRSs that address this issue and how? OR
? Should we use the NPV Forward rate to revalue the FX Forwards?
2- Off-Balance Sheet postings of spot transactions until settlement date of any FX type of transactions and Money Market type of transactions with regard to whether they are to be booked On-Balance Sheet or Off-Balance on the trade date till T+2 ( the settlement date ).
My opinion is that the moment the trade is made a commitment is to be recorded Off-Balance Sheet because it is a temporal memorandum posting to be settled within two days max (as a treasury convention spot is settled T+2). In addition it is a market practice to post the spot transactions Off-Balance Sheet as commitments in memorandum till settlement.
? Is the practice of booking Spot transactions as Off-Balance Sheet in memorandum commitments till T+2 (the settlement day after tomorrow) a correct practice?
? What are the paragraphs of the relevant IASs/IFRSs that address this issue and how?
PLEASE ENLIST AND STATE THE RELEVANT IASs/IFRSs PARAGRAPHS IN BOTH OF THE ABOVE CASES
Thank you for using BM.
Below are my answers.
Yes, the practice of using spot FX closing rates to revalue FX Forward Liabilities (i.e. the hedging instrument) likewise the Assets (i.e. the hedged items) is in accordance with IASs/IFRSs.
In revaluating the hedging instruments and the hedged items, the instrument and item must be classified first on whether they are part of a designated hedging relationship. This relationship dictates how both of these items are revalued and reported in the balance sheet and the profit and loss statement.
Paragraph 9 of IAS 39, Financial ...
The opinion of an accounting treatment is examined.