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Tiger Brands Limited Integrated Annual Report
2014
Annual financial statements
Hedge accounting
At the inception of a hedge relationship, the group
formally designates and documents the hedge
relationship to which the group wishes to apply
hedge accounting and the risk management
objective and strategy for undertaking the hedge.
The documentation includes identification of the
hedging instrument, the hedged item or transaction,
the nature of the risk being hedged and how the
entity will assess the hedging instrument’s
effectiveness in offsetting the exposure to changes in
the hedged item’s fair value or cash flows attributable
to the hedged risk. Such hedges are expected to be
highly effective in achieving offsetting changes in fair
value or cash flows and are assessed on an ongoing
basis to determine that they actually have been
highly effective throughout the financial reporting
periods for which they were designated.
Fair value hedges
Fair value hedges cover the exposure to changes
in the fair value of a recognised asset or liability,
or an unrecognised firm commitment (except for
foreign currency risk). Foreign currency risk of an
unrecognised firm commitment is accounted for as
a cash flow hedge.
The gain or loss on the hedged item adjusts the
carrying amount of the hedged item and is
recognised immediately in profit or loss. The gain
or loss from remeasuring the hedging instrument at
fair value is also recognised in profit or loss.
When an unrecognised firm commitment is
designated as a hedged item, the change in the fair
value of the firm commitment is recognised as an
asset or liability with a corresponding gain or loss
recognised in profit or loss. The change in the fair
value of the hedging instrument is also recognised in
profit or loss in the “Operating income/(loss) before
abnormal items” line in the income statement.
The group discontinues fair value hedge accounting
if the hedging instrument expires or is sold,
terminated or exercised, the hedge no longer meets
the criteria for hedge accounting, or the group
revokes the designation.
Cash flow hedges
Cash flow hedges cover the exposure to variability in
cash flows that are attributable to a particular risk
associated with:
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a recognised asset or liability; or
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a highly probable forecast transaction; or
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the foreign currency risk in an unrecognised firm
commitment.
The portion of the gain or loss on the hedging
instrument that is determined to be an effective hedge
is recognised directly in other comprehensive
income, while any ineffective portion is recognised
in profit or loss.
Amounts taken to other comprehensive income are
transferred to profit or loss when the hedged
transaction affects profit or loss, such as when the
hedged income or financial asset or liability is
recognised or when the forecast sale or purchase
occurs. Where the hedged item is the cost of a
non-financial asset or liability, the amount deferred
in other comprehensive income is transferred to the
initial carrying amount of the non-financial asset
or liability.
If the forecast transaction is no longer expected to
occur, amounts previously recognised in other
comprehensive income are transferred to profit or loss.
If the hedging instrument expires or is sold, terminated
or exercised without replacement or rollover, or if its
designation is revoked, amounts previously recognised
in other comprehensive income remain in other
comprehensive income until the forecast transaction
occurs. If the related transaction is not expected to
occur, the amount is taken to profit or loss.
Hedges of a net investment in a foreign operation
Hedges of a net investment in a foreign operation,
including a hedge of a monetary item that is
accounted for as part of the net investment, are
accounted for similarly to cash flow hedges. On
consolidation, gains or losses on the hedging
instrument relating to the effective portion of the
hedge are recognised in other comprehensive
income, while any gains or losses relating to the