Hedge accounting has always been one of those subjects that can make an otherwise confident accountant suddenly reach for the technical manual.

The basic commercial idea is simple enough.

A business faces a risk. It uses a derivative or another qualifying instrument to manage that risk. Hedge accounting then attempts to reflect the relationship between the risk management activity and the accounting outcome.

The difficulty has always been making the accounting follow the economics without creating a system so flexible that almost anything can be called a hedge.

IFRS 9 was intended to improve that balance. Its hedge accounting model moved away from some of the rigid requirements of IAS 39 and tried to align financial reporting more closely with how businesses actually manage risk.

Now the International Accounting Standards Board is looking at how well that model has worked in practice.

A post-implementation review of the IFRS 9 hedge accounting requirements began in 2026. The IASB has gathered initial feedback and plans to publish a formal Request for Information in September.

That does not mean IFRS 9 hedge accounting is about to be rewritten.

A post-implementation review begins by asking whether the requirements are working as intended. Any changes would come later and only if the evidence shows that action is necessary.

For ACCA SBR candidates, however, the review creates an excellent current reporting issue. It combines financial instruments, risk management, disclosures, professional judgement and the question that often sits behind good accounting standards:

Does the accounting tell users what the business is actually doing?

Candidates developing these areas with an ACCA SBR tutor should understand the purpose of the review rather than trying to predict amendments that have not yet been proposed.

Why hedge accounting exists in the first place

Without hedge accounting, the accounting for a derivative and the accounting for the item being hedged can create volatility that does not reflect management’s risk strategy particularly well.

Imagine a manufacturer expects to buy a large quantity of copper in six months.

Copper prices are volatile, so management enters into a forward contract to reduce the uncertainty around the future purchase price.

Economically, the company is trying to stabilise its cash outflow.

However, the derivative is normally measured at fair value, while the forecast purchase does not yet appear in the financial statements.

Changes in the derivative’s value could therefore affect reported performance before the related purchase has occurred.

Hedge accounting attempts to deal with this mismatch.

For a qualifying cash flow hedge, the effective portion of gains or losses on the hedging instrument can initially be recognised in other comprehensive income and dealt with when the hedged transaction affects the financial statements.

The accounting therefore follows the risk management relationship more closely.

That is the theory.

The challenge is deciding which risk management relationships qualify and how they should be accounted for when circumstances change.

IFRS 9 was already an attempt to fix hedge accounting

The current review needs to be understood in context.

IFRS 9 did not simply inherit the IAS 39 hedge accounting model unchanged.

One of the major criticisms of IAS 39 was that its requirements could feel disconnected from real risk management.

The effectiveness test is a good example.

IAS 39 used a quantitative effectiveness threshold commonly associated with the 80 to 125 per cent range. A hedging relationship could fail the accounting test even where management still considered the hedge commercially useful.

IFRS 9 replaced this with a more principles-based approach.

The current model focuses on whether there is an economic relationship between the hedged item and hedging instrument, whether credit risk dominates the value changes and whether the hedge ratio reflects the quantity actually used for risk management.

That was a significant change.

IFRS 9 also expanded the types of risk components that could potentially be designated, including some components of non-financial items.

The objective was to allow the accounting to reflect legitimate risk management activity more faithfully.

The current review is asking whether those changes delivered what was expected.

A review is not the same as an amendment

This distinction is particularly important for SBR candidates.

The IASB is currently carrying out a post-implementation review.

It is not currently proposing to replace the IFRS 9 hedge accounting model.

The review asks whether:

• the requirements are achieving their intended objectives
• the information produced is as useful to investors as expected
• the costs of applying, auditing and enforcing the requirements are broadly what was anticipated

That is the only bullet list needed here because those three questions capture the purpose of the exercise.

The answers may eventually lead to standard-setting activity.

They may also lead to guidance, educational material or no major change at all.

A strong current issues answer should therefore distinguish between a matter being reviewed and a confirmed amendment.

Writing that IFRS 9 hedge accounting “will change” would go too far.

Writing that the IASB is examining whether particular requirements are working as intended is accurate and demonstrates better professional judgement.

Eligible hedged items remain an important area

One of the improvements under IFRS 9 was the wider ability to designate risk components.

This is particularly important for businesses that hedge commodities.

A company may not necessarily hedge the entire price of an item.

For example, the price of aviation fuel may contain different components. Management may use derivatives to hedge exposure to one identifiable component rather than every factor affecting the final purchase price.

IFRS 9 can allow a non-financial risk component to be designated where it is separately identifiable and reliably measurable.

This makes the accounting more closely aligned with the way the business manages the risk.

The difficulty is applying those words in practice.

What makes a component separately identifiable?

How strong does the relationship need to be?

Can the component be measured reliably where there is no explicit contractual formula?

These questions require judgement.

The review gives stakeholders an opportunity to explain whether the existing principles work consistently or create unnecessary difficulty.

For SBR candidates, the important lesson is to avoid assuming that an entire item must always be hedged.

Start with the actual risk management strategy.

What exposure is management trying to control?

Then assess whether that exposure qualifies as a hedged item.

Hedge effectiveness is less rigid but not effortless

IFRS 9 removed one of the most famous bright-line tests in financial reporting.

That did not remove the need to assess effectiveness.

A qualifying hedging relationship still needs an economic relationship between the hedged item and the hedging instrument.

The hedge ratio also matters.

Management cannot deliberately designate an artificial ratio merely to produce a favourable accounting result.

This creates a more realistic model, but it can also require judgement.

A company may use an instrument that is not a perfect match for the exposure.

Dates may differ.

Currencies may differ.

Reference prices may differ.

The derivative may respond slightly differently to market movements than the item being hedged.

These differences can create hedge ineffectiveness.

A good SBR answer should therefore avoid saying that hedge accounting eliminates volatility.

It does not.

The objective is to reflect the qualifying risk management relationship appropriately while recognising genuine ineffectiveness where it arises.

Rebalancing is one of the areas worth watching

Rebalancing was introduced to allow a qualifying hedging relationship to continue when the relationship between the hedged item and hedging instrument changes.

This can be commercially sensible.

Suppose a company hedges an exposure using two variables that historically move closely together.

If their relationship changes, the original hedge ratio may no longer accurately represent the risk management relationship.

Under IFRS 9, the company may be able to adjust the hedge ratio rather than automatically discontinuing hedge accounting and starting again.

The principle sounds sensible.

Application can be more difficult.

Management needs to distinguish between a change that requires rebalancing and a change showing that the qualifying relationship has effectively broken down.

There can also be practical questions around how the adjustment is calculated and documented.

Initial stakeholder feedback to the IASB has identified rebalancing as an area where application guidance or educational material may potentially help.

That does not mean the rebalancing model will be replaced.

It means the Board is examining whether accountants can apply it consistently.

Discontinuation creates another judgement call

IFRS 9 also changed the way hedge accounting is discontinued.

Under the current model, management cannot simply voluntarily de-designate a hedging relationship while the risk management objective remains unchanged and the qualifying criteria continue to be met.

This was designed to prevent opportunistic accounting.

A company should not be able to switch hedge accounting on and off simply because one treatment produces a more attractive result.

However, risk management strategies evolve.

Management may change the way an exposure is managed.

An instrument may no longer serve the original purpose.

A forecast transaction may cease to be highly probable.

The relevant question becomes whether the original risk management objective still exists.

This requires accountants to understand the commercial strategy rather than treating discontinuation as a purely accounting choice.

That makes it a useful SBR scenario.

If management wants to discontinue hedge accounting simply because the current result is unfavourable, the candidate should challenge that proposal.

Accounting should follow the genuine risk management strategy, not management’s preferred profit figure.

Basis adjustment still confuses people

Cash flow hedges involving forecast purchases can lead to another technical area that candidates often find difficult.

Imagine the company hedges the future purchase of inventory.

The derivative produces gains or losses before the inventory is recognised.

When the forecast transaction eventually results in recognition of a non-financial asset, the amount accumulated in the cash flow hedge reserve may be removed and included directly in the initial carrying amount of the asset.

This is commonly described as a basis adjustment.

Economically, this makes sense.

The company hedged the purchase price. The accounting allows the effect of the hedge to become part of the cost of the asset that was acquired.

The practical application can still become complicated, particularly where hedging relationships are adjusted, transactions occur in stages or only part of an exposure is hedged.

Stakeholder feedback gathered during the review has included mixed views on some basis-adjustment requirements.

Again, that does not automatically mean an amendment is coming.

It shows that the IASB wants to understand whether the accounting remains understandable and useful.

The cost of hedging concept was supposed to improve the story

A derivative may contain components that the company does not designate as part of the hedging relationship.

Options provide a good example.

A company may purchase an option to protect itself against an adverse movement while retaining the benefit of a favourable movement.

The option has a time value.

Under IFRS 9, changes relating to some excluded components can be accounted for using the cost of hedging approach rather than simply creating immediate profit or loss volatility.

The idea is that certain costs associated with obtaining protection are economically similar to the cost of insurance.

This can provide a more understandable reporting result.

However, cost of hedging requirements are not necessarily intuitive on first reading.

Candidates should focus on the commercial logic.

Why did the business enter into the instrument?

Which component is actually designated?

What happens to the excluded component?

How does the accounting reflect the period or transaction being protected?

Understanding that story is much more useful than memorising journal entries in isolation.

Disclosures may be as important as the accounting mechanics

Hedge accounting can become technically complex very quickly.

That makes disclosure especially important.

Investors need to understand which risks the company is managing, how management is managing them and what effect hedge accounting has had on the financial statements.

A table of derivative balances on its own may tell users very little.

Users need context.

What risk is being hedged?

How much exposure remains unhedged?

When are the hedged cash flows expected to occur?

Where have gains and losses been recognised?

How much ineffectiveness has affected profit?

Are the accounting results consistent with the stated risk management strategy?

The related IFRS 7 disclosure requirements are therefore included in the post-implementation review.

Initial feedback has highlighted some practical questions about how certain fair value changes should be disclosed and reconciled.

This is important.

If the accounting model becomes so complicated that investors cannot understand the disclosure, it may fail one of its main objectives even where preparers have followed every technical requirement correctly.

Better alignment with risk management was the big promise

The central question behind the review is straightforward.

Did IFRS 9 actually make hedge accounting reflect risk management more faithfully?

There are reasons to think it improved matters.

The wider eligibility of risk components allows more genuine hedging strategies to qualify.

The principles-based effectiveness requirements removed the rigid 80 to 125 per cent bright line.

Rebalancing can allow a genuine hedge relationship to continue when circumstances change.

The cost of hedging approach can produce a more understandable result for certain excluded components.

Academic research reviewed by the IASB also provides some evidence that IFRS 9 may have improved comparability or transparency in some circumstances.

However, the evidence is not uniform.

Some companies still continue to apply the hedge accounting requirements in IAS 39 where that accounting policy choice remains available.

Research also suggests that IFRS 9 did not necessarily cause a dramatic increase in the number of companies choosing hedge accounting.

That raises a useful question.

If an accounting model was designed to align more closely with risk management but some companies still find the benefits insufficient to justify the effort, why?

The post-implementation review gives the IASB an opportunity to investigate.

Cost matters even when the accounting is better

A technically superior model is not automatically a successful standard if applying it requires disproportionate effort.

Hedge accounting can involve significant systems and documentation.

Companies need data about derivatives and hedged exposures.

They need processes for assessing effectiveness.

They need documentation showing the risk management objective and hedge ratio.

They may need valuation systems and specialist staff.

Auditors then need to test those judgements and controls.

The IASB expected IFRS 9 to reduce some of the ongoing burden compared with IAS 39, particularly because of the less rigid effectiveness testing approach.

The review will consider whether those expectations have been met.

This is an excellent professional marks point in SBR.

Good standard setting involves a trade-off.

Users need relevant and reliable information.

Preparers and auditors also need requirements that can be applied at a reasonable cost.

An answer that recognises both perspectives is stronger than simply demanding more disclosure or more complex measurement.

Risk management itself has changed

There is another reason why a review is timely.

The risks businesses manage are changing.

Energy prices have become more volatile.

Companies may hedge electricity generated from renewable sources.

Commodity markets can be affected by geopolitical instability.

Interest rate volatility has become much more visible after years of relatively low rates.

Currency exposures remain significant for global supply chains.

Risk management tools are also becoming more sophisticated.

The accounting model therefore has to work in an environment that may look different from the one companies faced when IFRS 9 was first developed.

Recent amendments relating to contracts referencing nature-dependent electricity provide one example of the IASB responding to evolving commercial arrangements.

The broader post-implementation review can now examine whether the core hedge accounting model continues to work across modern risk management strategies.

There is a separate risk mitigation accounting project

Candidates need to be careful not to mix two different IASB projects.

The IFRS 9 hedge accounting post-implementation review examines the existing general hedge accounting requirements.

Separately, the IASB has proposed a Risk Mitigation Accounting model dealing particularly with how financial institutions manage interest rate repricing risk on a dynamic basis.

These projects are related to risk management, but they are not the same project.

That distinction is worth understanding because a current issues answer can easily become inaccurate by combining developments that have different objectives.

A bank managing a constantly changing portfolio of interest rate exposures faces different accounting challenges from a manufacturer hedging a forecast commodity purchase.

Good professional writing keeps those issues separate.

What companies should be doing now

Companies should not start changing hedge accounting policies because a review is underway.

There is currently no new general hedge accounting model to implement.

The sensible response is to assess where the existing requirements create genuine difficulty.

Finance teams should identify areas that require significant manual work, repeated judgement or complex system processes.

They should also consider whether disclosures actually help users understand risk management.

If the September consultation asks about an issue affecting the business materially, companies and professional bodies will have the opportunity to provide evidence.

Evidence matters more than general complaints.

Saying that hedge accounting is difficult tells a standard setter very little.

Explaining that a specific requirement creates significant cost without improving the information available to investors is far more useful.

How this could appear in an SBR question

An exam scenario could describe a manufacturing group using derivatives to manage commodity price risk, foreign currency risk and interest rate exposure.

Management might complain that applying hedge accounting is expensive and suggest abandoning the process completely.

The requirement could ask the candidate to discuss the purpose of hedge accounting, explain the current review and advise the board.

A weak answer would give a long technical definition of hedge accounting.

A stronger answer would explain that IFRS 9 aims to align accounting more closely with genuine risk management.

It would identify relevant issues in the scenario, such as whether the risk component is eligible, whether an economic relationship exists and whether the hedge ratio reflects the actual strategy.

It could then explain that the IASB is reviewing whether the requirements deliver the expected benefits and whether the costs are proportionate.

The conclusion should be practical.

Management should continue applying the current IFRS 9 requirements while monitoring the review. It should document the areas creating unnecessary cost and consider responding to the consultation where those issues are significant.

That is current, technically accurate and board-ready.

Do not turn the review into a prediction exercise

This is probably the biggest exam trap.

A current issues requirement is not an invitation to invent the next version of IFRS 9.

Candidates should not write that effectiveness testing will disappear, that voluntary de-designation will return or that hedge disclosures will definitely be simplified.

None of those outcomes has been decided.

A better answer distinguishes three things.

The existing requirement.

The practical concern.

The review process.

For example:

“IFRS 9 permits rebalancing where the hedge ratio needs adjustment but the risk management objective remains unchanged. Stakeholders have identified aspects of rebalancing as difficult to apply consistently. The post-implementation review provides the IASB with an opportunity to assess whether additional guidance or standard-setting action is necessary.”

That sentence shows far more professional judgement than predicting a change.

Why this topic is valuable for SBR candidates

Hedge accounting is sometimes treated as a specialist technical topic that candidates would rather avoid.

The current review shows why that is a mistake.

It is ultimately about the relationship between accounting and economic reality.

A company manages risks because it wants to protect cash flows, margins, financing costs or asset values.

Financial reporting should help investors understand those activities.

If the accounting creates artificial volatility, the risk management story becomes harder to see.

If the accounting is too flexible, management may be able to manipulate the story.

If the disclosures are too complicated, investors may still not understand the risk.

That tension is exactly the kind of issue SBR is designed to test.

Candidates following an ACCA SBR course should therefore practise hedge accounting as a business problem rather than simply a series of journal entries.

Understand the exposure.

Understand the instrument.

Understand the purpose of the hedge.

Then explain how the accounting represents that relationship.

What happens next

The next major step is expected to be the IASB’s Request for Information in September 2026.

That consultation should provide a clearer picture of the questions the Board wants stakeholders to answer.

It will not itself change IFRS 9.

The IASB will need to analyse the responses and decide whether any matters require further action.

Some issues may justify additional standard setting.

Some may be better addressed through guidance or educational material.

Others may require no action.

That is how a proper post-implementation review should work.

The Board is not starting from the assumption that the model has failed.

It is asking whether the model has delivered what was promised.

The bigger lesson

Hedge accounting exists because financial reporting should reflect the economic effect of genuine risk management without giving companies unrestricted freedom to shape reported results.

IFRS 9 moved the balance towards a more principles-based model.

The 2026 review is testing whether that balance works.

For companies, the important question is whether the accounting provides useful information at a proportionate cost.

For SBR candidates, the lesson is slightly simpler.

Do not learn hedge accounting as a collection of disconnected rules.

Start with the risk the company is trying to manage.

Understand what instrument it has used.

Explain whether the relationship qualifies.

Then show where gains and losses belong and what investors need to understand.

If the accounting tells the same story as the risk management, hedge accounting is doing what it was designed to do.

The current review will help determine whether IFRS 9 is achieving that consistently in practice.