GENERAL MEETING DRAFT - Bankier.pl

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Derivative hedging instruments are of three types:
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>> Financial Statements
Part A – Accounting Policies
� Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or
liability, or an identifiable portion of such an asset or liability;
� Cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a
particular risk associated with a recognised asset or liability or a highly probable forecast
transaction which could affect profit or loss;
� Hedge of a net investment in a foreign operation.
A hedging relationship qualifies for hedge accounting if there is formal designation and documentation of
the hedging relationship including the risk management objective, the strategy for undertaking the hedge,
and how the hedging instrument’s effectiveness will be assessed. It is necessary to assess the hedge’s
effectiveness, at inception and in subsequent periods. in offsetting the exposure to changes in the hedged
item’s fair value or cash flows attributable to the hedged risk.
A hedge is regarded as highly effective if, at the inception of the hedge and in subsequent periods, it is
determined prospectively to remain highly effective, i.e. that the hedge ratio is within a range of 80-125
per cent. The hedge is assessed on an ongoing basis and thus must prospectively remain highly effective
throughout the financial reporting periods for which the hedge was designated.
The assessment of effectiveness is made at each balance-sheet date or other reporting date.
If the assessment does not confirm the effectiveness of the hedge, from that time on hedge accounting is
discontinued in respect of the hedge and the hedging derivative is reclassified as a held-for-trading
instrument.
In addition, the hedging relationship ceases when the hedging instrument expires or is sold, terminated or
exercised; the hedged item is sold, expires or is repaid; or it is no longer highly probable that the forecast
transaction will occur.
Hedging instruments are so designated when identifiable with an ultimate counterparty outside the Group.
Hedging derivatives are measured at fair value. Specifically:
� Fair Value Hedging – an effective fair value hedge is accounted for as follows: the gain or loss
from remeasuring the hedging instrument at fair value is recognised through profit or loss in item
90 “Fair value adjustments in hedge accounting”; the gain or loss on the hedged item attributable
to the hedged risk adjusts the carrying amount of the hedged item and is recognised through profit
or loss in the same item. If the hedging relationship is terminated for reasons other than the sale
of the hedged item, this is measured according to the original criterion dictated by the accounting
standard applied to the relevant portfolio. In the case of interest-bearing instruments, the
difference between the carrying amount of the hedged item on termination of the hedging and the
carrying amount it would have had if the hedge had never existed, is recognised through profit or
loss in interest receivable or payable over the residual life of the original hedge. The difference in
fair value of the hedging derivative since the latest effectiveness testing date is recognised in
profit or loss under item 90 “Fair value adjustments in hedge accounting”. If the hedged item is
sold or repaid, the unamortised portion of fair value is at once recognised through profit or loss in
the item 100. “Gains (losses) on disposal or repurchase”;
� Cash Flow Hedging – the portion of the gain or loss on a cash flow hedging instrument that is
determined to be an effective hedge is recognised initially in equity item 140 “Revaluation
reserves”. The ineffective portion of the gain or loss is recognised through profit or loss in item 90
“Fair value adjustments in hedge accounting”. If a cash flow hedge is determined to be no longer
effective or the hedging relationship is terminated, the cumulative gain or loss on the hedging
instrument that remains recognised in “Revaluation reserves” from the period when the hedge
was effective remains separately recognised in “Revaluation reserves” until the forecast
transaction occurs or is determined to be no longer possible; in the latter case gains or losses are