Hedging myths VIII - "Hedge accounting is just paperwork. We'll sort the documentation later."

Apollo, enamored by Cassandra’s beauty, offered her the gift of prophecy in exchange for her love. Cassandra initially accepted the gift but later rejected Apollo. In retaliation, Apollo cursed her so that no one would ever believe her prophecies, turning her divine gift into a source of endless frustration and tragedy.

Today we have the concept of the Cassandra complex, which describes situations where valid predictions or concerns are dismissed or disbelieved

Every company has a Cassandra; usually the one person saying "we need the hedge documentation in place before we trade, not after."

They're right but they're ignored and then the auditor arrives …

Without designation and effectiveness documentation at inception, the hedge doesn't qualify. The mark-to-market goes straight to the P&L. Under IFRS 9 or ASC 815, "we'll sort it later" isn't a policy but a restatement waiting for a date.

The paperwork isn't the chore; it’s the hedge. Skip it and you've managed the risk without the accounting protection.

Believe your Cassandra. Document at inception.

Our series explaining hedging myths with the ancient Greeks is coming to an end. But don’t worry we have something new in store 😊

Our last myth is the age-old chestnut “hedging is too complex”. Which hero gets the final myth?