IFRIC 16 Hedges of a Net Investment in a Foreign Operation clarifies that the presentation currency does not create an exposure to which an entity may apply hedge accounting. A parent entity may designate as a hedged risk only the foreign exchange differences arising from a difference between its own functional currency and that of its foreign operation. The hedging instrument(s) can be held by any entity within the group as long as the designation, effectiveness and documentation requirements are satisfied. On derecognition of a foreign operation, IFRS 9 must be applied to determine the amount that needs to be reclassified to profit or loss from the foreign currency translation reserve in respect of the hedging instrument, while IAS 21 must be applied in respect of the hedged item.


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