Subject: Timing of Transferring Accounts Receivable FX Cash Flow Hedge from OCI to P&L
Hello everyone,
I’m seeking clarification on the timing of when to transfer amounts from Other Comprehensive Income (OCI) to Profit & Loss (P&L) for accounts receivable foreign exchange (FX) cash flow hedges. My understanding is that this transfer should occur when the transaction affects profit and loss (i.e., when the sale receivable is recognized).
However, I’ve come across various examples online—plus some responses from ChatGPT—that suggest the transfer only takes place once cash is received and the forward rate contract is settled.
Does anyone have a clear understanding of this process or recommendations for reliable resources on the topic? Any help would be greatly appreciated! Thank you!
One response
You’re correct in your understanding of the timing for the transfer from Other Comprehensive Income (OCI) to Profit and Loss (P&L) regarding accounts receivable and FX cash flow hedges. Generally, the transfer happens when the hedged transaction affects profit and loss.
In the case of accounts receivable, the hedged transaction typically refers to the sale that generates the receivable. According to IFRS 9, when the sale is recognized, the gains or losses on the hedging instrument that are recorded in OCI should be reclassified to P&L at that point, as the hedged item (the accounts receivable) is expected to impact the P&L once the sale is recognized.
However, many practitioners also suggest that the effective portion of the hedge only gets reclassified when the cash from the receivable is realized, which may be what you’re seeing in various examples. This approach tends to emphasize the realization aspect of cash flows and aligns with ensuring the hedging relationship reflects the timing of cash receipt.
A few key points to consider:
1. Timing of Recognition: Under IFRS 9, align your cash flow hedge Accounting with the occurrence of the transaction impacting P&L. For accounts receivable, this is typically at the time of sale recognition.
Cash Receipt vs. Sale Recognition: While the cash receipt can influence when you’ll get your cash flows, the hedge Accounting principle would navigate on the recognition of the transaction itself rather than the cash collection.
Documentation and Consistency: It’s crucial to document your Accounting policy clearly regarding when you reclassify amounts from OCI to P&L, ensuring consistency in your processes.
For further guidance, I recommend checking out the IFRS 9 standard specific to hedge accounting, along with resources like Deloitte’s or PwC’s guidance on hedge accounting practices, which can offer detailed examples and insights. If you have access to IFRS educational platforms, they may also provide in-depth resources. If in doubt, consulting with your auditors or a financial consultant would be advisable.