If both increases and decreases in the value of a recognized asset or liability are recognized in current earnings according to existing accounting principles, special hedge accounting is necessary.

Question

Quizplus · Accepted Answer

Special hedge accounting is used to match the timing of gains and losses on the hedged item with the hedging instrument in the financial statements, primarily when the changes in value of the recognized asset or liability do not impact current earnings directly or in the same period. If both increases and decreases in value are already recognized in current earnings, the primary purpose of hedge accounting—to align the timing of these impacts—may not be necessary.

If Both Increases and Decreases in the Value of a Recognized