Mastered derivatives? Try hypothetical derivatives

Rolf Stromsoe of Deloitte explores the hypothetical derivative method for testing the effectiveness of cash flow hedges.

Rolf Stromsoe is Director of Financial Instruments Solutions at Deloitte.

As if accounting for real derivatives isn’t difficult enough, many companies are using ‘hypothetical derivatives’ in their IAS 39 or FRS 26 accounting. This article explores hypothetical derivatives and their usefulness in hedge accounting.