Wednesday, September 10, 2008

#46- Disadvantage of Hedge Accounting

Implementation of hedge accounting is aimed to reduce the earning volatility of the Company and to comply with the matching of the principle. However, there are some disadvantages in associated with Hedge Accounting:
- the hedge relationship has to be highly effective in order to qualify for hedge accounting
- high monitoring costs incurred from closely and constant moniotoring
- high documentation costs ( substantive documentations are required to support the hedge)
These factors are discouraging the Company from adopting hedge accounting.

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