Issue rejected—Agenda decision

The Interpretations Committee observed that:

1. paragraph 6.5.13 of IFRS 9 states that ‘hedges of a net investment in a foreign operation … shall be accounted for similarly to cash flow hedges …’. Paragraph 6.5.13 (a), which focusses on net investment hedges, also references paragraph 6.5.11, which deals with the accounting for cash flow hedges; this includes the ‘lower of’ test. This indicates that, when accounting for net investment hedges, an entity should apply the ‘lower of’ test in determining the effective portion of the gains or losses arising from the hedging instrument.
2. in determining the effective portion of the gains or losses arising from the hedging instrument when accounting for net investment hedges, the application of the ‘lower of’ test avoids the recycling of exchange differences arising from the hedged item that have been recognised in other comprehensive income before the disposal of the foreign operation. The Interpretations Committee noted that such an outcome would be consistent with the requirements of IAS 21 The Effects of Changes in Foreign Exchange Rates.

In the light of the existing requirements in IFRS Standards, the Interpretations Committee decided that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee decided not to add this issue to its agenda.