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Accounting for dynamic risk management activities

Accounting for dynamic risk management activities

A new approach to macro hedge accounting aims to better reflect risk management in IFRS.



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The IASB aims to align macro hedge accounting more closely with risk management activities.

Responding to problems with existing requirements

Although current IFRS provides models for macro hedge accounting, these contain restrictions that limit their ability to reflect some common dynamic risk management activities.

In response to this issue, the IASB published a discussion paper on a new approach for macro hedge accounting as the first due process document for the project.

The project – which involves fundamental accounting questions and is not simply a modification to existing hedge accounting models – seeks to address the difficulties of faithfully representing a company’s risk management activities in its financial statements.


“This is the opportunity for everyone to say what they think a transparent, operational and decision-useful accounting solution should look like.”


There is expected to be a potentially pervasive impact on banks’ financial position and performance. Corporates also need to get to grips with what is, for many, a new concept.

Our suite of publications can help you to understand the issues under discussion and the possible impacts for your business – from high-level summary (PDF 643 KB) to detailed analysis (PDF 1.19 MB).

Is a portfolio revaluation approach the solution?

The discussion paper puts forward an outline of one possible approach to macro hedge accounting, a ‘portfolio revaluation approach’ (PRA), which in some ways is similar to the fair value hedge model.

The IASB expects the PRA to be operationally easier to apply than the current hedge accounting models because:

  • the accounting result would be consistent with risk management activities; and
  • it would not require a specific linkage between managed exposures and risk management derivatives.

How would the PRA be applied?

The discussion paper presents two scope alternatives for the application of the PRA, which differ based on whether the PRA would capture all three elements of dynamic risk management – i.e. risk identification, analysis and mitigation through hedging.  

Additional questions are raised in the discussion paper as to how closely the accounting should reflect the dynamic risk management activities undertaken, as well as whether application of the PRA should be mandatory or optional.

A wide range of industries affected

While the IASB has focused on dynamic risk management of interest rate risk for banks as a starting point, dynamic risk management activities are not restricted to this particular area.

Companies across a number of industries engage in dynamic risk management activities, covering a broad range of strategies, techniques and approaches. 

These activities may manage risks such as interest rate risk, commodity price risk and foreign exchange risk. Existing requirements under IFRS may result in different measurement or recognition for items that have the same or similar risks.

Models used to address these accounting mismatches do not necessarily portray dynamic risk management.

Deliberations continue into 2015

With the comment period having closed on 17 October 2014, the IASB has continued its discussions on macro hedging in 2015.

Our IFRS Newsletter: Financial instruments reports on the latest developments.

Where can you learn more?

Read our In the Headlines (PDF 493 KB) for a high-level summary of the DP and the possible impacts for your business. 

Our New on the Horizon (PDF 1.19 MB) provides our detailed analysis. It explains the background to the macro hedge accounting project, before walking through the discussion paper, focusing on the proposed portfolio revaluation approach.

Our IFRS – Financial instruments hot topics page presents our latest thinking on the new financial instruments standard, IFRS 9 (2014), along with our commentary on emerging implementation issues.

It also brings you the latest developments on other aspects of financial instruments accounting under IFRS.

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