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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Accounting for corporate finance: hedging: categories of hedge

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

Categories of hedging relationships

The accounting standards defines three categories of hedging relationships:

  • Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability; an unrecognised firm commitment; or an identified portion of an asset, liability or firm commitment that is attributable to a particular risk and could affect profit and loss.
  • Cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable either to a particular risk associated with an asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable future transaction and which could affect profit and loss.
  • Hedge of a net investment in a foreign operation: a hedge of the exposure that the carrying amount of a net investment in a foreign operation will change in response to foreign exchange movements.