Formal documentation defining the relationship between a hedged item and the derivative instrument must be prepared to qualify for hedge accounting.

Question

Quizplus · Accepted Answer

This statement is true. Formal documentation is required to establish the relationship between the hedged item and derivative instrument, and demonstrate that the hedge is expected to be highly effective in offsetting changes in the value of the hedged item. This documentation may include a hedging strategy, risk management objectives, and a description of the hedged item and derivative instrument. Without proper documentation, a company may not qualify for hedge accounting.

Formal Documentation Defining the Relationship Between a Hedged Item and the Derivative