International Financial Reporting Standards

Hedge Accounting Webcast 8 November 2010

The views expressed in this presentation are those of the presenter, not necessarily those of the IASB or IFRS Foundation
2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Hedge accounting relationship to risk management

Risk management objective:

Seeks to link risk management and financial reporting (top down)

Accounting objective:
Seeks to manage timing of recognition of gains or losses (bottom up)

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Hedged items risk components

Fixed element Variable element ED Bench mark (eg commodity price) Bench mark (eg commodity price) Hedge available IAS 39

Exposure

Alignment of risk management with hedge accounting

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Effectiveness Assessment

Original hedge ratio Revised hedge ratio

Perfect ratio with benefit of hindsight

New trend

Rebalancing One (continuing) risk management and hedge accounting relationship

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Option Premium
Intrinsic value (IAS 39)

Time Value (cost of hedging)

Treatment as a cost of hedging reflects economics

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Presentation of fair value hedges

Hedge Accounting in one placeOCI

Transparency for hedging effectiveness and ineffectiveness Balance Sheet carrying amounts not adjusted

Comprehensive picture of hedge accounting effects in one place

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Disclosures

Total entity risk exposure (no specific disclosure requirements)

IFRS 7 Disclosure requirements

Hedged exposure (Exposure to risks being hedged)

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Next steps
Deliberations on general hedge accounting model have been completed
Board has asked staff to begin drafting Deliberations on portfolio hedge accounting to continue

Exposure draft expected in Q4 2010 Continued outreach IFRS in Q2 of 2011

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions or comments?
Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions

Could you please elaborate on hedging a component of risk for non financial hedged items. Specially for items with a Fixed component which is link to a commodity index?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
Why present fair value hedge differently?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
would the corridor effectively expand to 50 200%?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
I do welcome any attempt to help accounting not betray business decisions and risk management. I understand that "macro" hedge accounting is set aside to allow further discussions. Can you please give us a flavour of the Board current view on this topic that is more than impacting for retail banks for instance. Thank you.

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
is the effectiveness test based on how management measure risk?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
what in practice for premium on option (representing time value) ? Can it be capitalized and taken in P&L when underlying impacts P&L ?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Questions
No plan for convergence with U.S. GAAP?

2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org