Boundary with IFRS 9

Learning objectives

• Distinguish what falls within IFRS 9 (derivatives, hedging) from what falls within this Standard.L3

Normative references

• IAS 21 §4The many foreign currency derivatives within the scope of IFRS 9 are excluded from the scope; those outside IFRS 9 (for example, some derivatives embedded in other contracts) remain within the scope, and the Standard also applies when an entity translates amounts relating to derivatives from its functional currency into its presentation currency. Hedge accounting is dealt with in para. 5.
• IAS 21 §5Hedge accounting for foreign currency items, including the hedging of a net investment in a foreign operation, falls within IFRS 9, not IAS 21.
• IAS 21 §27Cross-reference: hedge accounting for foreign currency items falls within IFRS 9 (paras. 3(a) and 5), which may require some exchange differences to be treated differently from the treatment required by IAS 21; example: exchange differences on a monetary item designated as a hedging instrument in a cash flow hedge, recognised initially in other comprehensive income to the extent that the hedge is effective.
• IAS 21 §52Disclosures (para. 52): (a) the amount of exchange differences recognised in profit or loss, except for those arising on financial instruments measured at fair value through profit or loss in accordance with IFRS 9; (b) net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, with a reconciliation of the amount of such exchange differences at the beginning and end of the period.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

2 questions

• Brannec holds a forward exchange contract within the scope of IFRS 9, measured at fair value through profit or loss. What should be said about this contract under IAS 21?L3
• Ardenne, whose functional currency is the euro, has a dollar borrowing (a monetary item). Case data: it designated the borrowing as the hedging instrument of the foreign currency risk on future dollar purchases, in a cash flow hedge that meets the IFRS 9 conditions; at the closing date, the hedge is fully effective. How is the exchange difference on the borrowing treated?L2