NEW YORK-The International Financial Reporting Interpretations Committee (IFRIC) issued on July 3, 2008 an Interpretation: “IFRIC 16 Hedges of a Net Investment in a Foreign Operation”.
IFRIC 16 applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39.
The Guidance clarifies the following issues:
• First, whether risk arises from the foreign currency exposure to the functional currencies of the foreign operation and the parent entity, or from the foreign currency exposure to the functional currency of the foreign operation.
• Secondly, which entity within a group can hold a hedging instrument in a hedge of a net investment in a foreign operation.
• Thirdly, how an entity should determine the amounts to be reclassified from equity to profit or loss.
The Interpretation is effective beginning October 1, 2008.
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