Assessing highly probable cash flows in light of COVID-19

There are several accounting considerations the COVID-19 pandemic has triggered in relation to IFRS 9. In our view one of the most significant is in relation to hedge accounting and highly probable cash flows. 

Under IFRS, if an entity is applying hedge accounting as part of its risk management strategy, it will follow the hedging requirements in IFRS 9 ‘Financial Instruments’. However it could still be applying the requirements in IAS 39 ‘Financial Instruments: Recognition and Measurement’ in certain circumstances. In both cases, a key criterion relating to cash flow hedges over forecast transactions relates to the requirement for the hedged cash flows to be highly probable. This is set out in IFRS 9.6.3.3.

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