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HMRC internal manual

Corporate Finance Manual

Accounting for corporate finance: hedging: hedging within a group

This guidance applies to companies which apply IFRS, New UK GAAP or FRS 26.

Hedging risks within a group

For hedge accounting purposes, only instruments that involve a party external to the reporting entity (i.e. external to the group, segment or individual entity that is being reported on) can be designated as hedging instruments. Although individual entities within a consolidated group or divisions within an entity may enter into hedging transactions with each other, any such intragroup transactions are eliminated on consolidation. Therefore, such hedging transactions do not qualify for hedge accounting in the consolidated financial statements of the group. However, they may qualify for hedge accounting in the individual entity financial statements, or in segment reporting, as the counterparty will be external to the individual entity or segment that is being reported on.