UBI Banca Group

The methods used for measurement of the fair value of the risk hedged in the assets or
liabilities hedged are described in the notes that comment on available-for-sale financial
assets, loans and held-to-maturity investments.
5.3.2 Cash flow hedging
When a derivative is designated as a hedge of exposure to changes in expected cash flows from
an asset or liability in the balance sheet or a future transaction considered highly probable,
the accounting treatment of the hedge is as follows:
• the profits or losses (from the valuation of the hedging derivative) attributable to the
effective portion of the hedge are recognised in a special reserve in equity termed 140 “Fair
value reserves
• the profits or losses (from measurement of the hedging derivative) attributable to the
ineffective portion of the hedge are recognised directly in the income statement under item
90 “Net hedging income (loss)”;
• the asset or liability hedged is measured according to the class of asset or liability to which
it belongs.
If a future transaction occurs which involves recognising non-financial assets and liabilities,
the corresponding profits or losses initially recognised under item 140 “Fair value reserves” are
then transferred from that reserve and included as an initial cost of the asset or liability that is
recognised If the future hedged transaction subsequently involves recognition of a financial
asset or liability, the associated profits or losses that were originally recognised under the item
140 “Fair value reserves” are reclassified to the income statement in the same reporting period
or periods during which the assets acquired or liabilities incurred have an effect on the income
statement If a portion of the profits or losses recognised in the fair value reserve are not
considered recoverable, it is reclassified into the income statement within item 80 “Net trading
income (loss)”.
In all cases other than those already described, the profits or losses initially recognised under
the item 140 “Fair value reserves” are transferred to the income statement to reflect the time
and manner in which the future transaction is recognised in the income statement
An entity must discontinue hedge accounting prospectively in each of the following
circumstances:
(a) the hedging instrument expires or is sold, terminated, or exercised (for this purpose the
replacement or exchange of one hedging instrument with another hedging instrument is
not a conclusion or termination if that replacement or exchange forms part of an entity’s
documented hedging strategy). In this case the total profit (or loss) on the hedging
instrument continues to be recognised directly in equity until the reporting period in
which the hedge became effective and it continues to be recognised separately until the
programmed hedging transaction occurs;
(b) the hedge no longer satisfies the criteria for hedge accounting. In this case the total profit
or loss on the hedging instrument continues to be recognised directly in equity starting
from the reporting period in which the hedge became effective and it continues to be
recognised separately in equity until the programmed hedging transaction occurs;
(c) it is no longer considered that the future transaction should occur, in which case any
related total profit or loss on the hedging instrument recognised directly in equity starting
from the reporting period in which the hedge became effective must be recognised through
profit or loss;
(d) the entity revokes the designation. For hedges of a programmed transaction, total profits
or losses on the hedging instrument recognised directly in equity starting from the
reporting period in which the hedge became effective continue to be recognised separately
in equity until the programmed transaction occurs or it is expected that it will no longer
occur.
If it is expected that the transaction will no longer occur the total profit (or loss) that had been
recognised directly in equity is transferred to the income statement.
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