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IFRIC 16 Hedges of a Net Investment in a Foreign Operation

IFRIC 16 provides guidance on what can be an eligible hedged risk, which entities may hold the hedging instrument, and reclassification adjustments.

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IFRIC 16 provides guidance on three main issues:

  1. Foreign currency risk
    A parent company may designate as a hedged risk only those exchange differences which arise from a foreign operation using a different functional currency from its own. The presentation currency does not expose an entity to risks which may be hedged.
  2. Hedging instrument
    The hedging instrument in a hedge of a net investment in a foreign operation may be held by any entity or entities within the group.
  3. Reclassification adjustments on disposal of the investment
    IFRIC 16 requires that IAS 21 should be applied to determine the amount which is reclassified to profit or loss in respect of the hedged item and IFRS 9 must be applied to determine the amount in respect of the hedging instrument.

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