IFRS 9 – hedge accounting: Vurdering af revisionsmæssige overvejelser som følge af IFRS 9, fase 3,herunder analyse af udfordringerne ved revision heraf

Dahlgaard Pedersen Mette & Uhd Claus Jørgensen

Student thesis: Master thesis


The topic of our study is “Audit of hedge accounting under IFRS 9, phase 3” which is required to be applied for annual periods beginning on or after 1 January 2018, with earlier application permitted. All Danish companies listed on NasdaqOMX are subject to International Financial Reporting Standards (IFRS). Based on the high level of complexity of utilization and understanding of the requirements to the current accounting standard to hedge accounting, IAS 39, IASB decided to develop a new accounting standard. The main objective of IFRS 9 is to improve the reflection of risk management in order that it appears more appropriately, change the requirements for using the beneficial hedge accounting to be more principle-based than the current arbitrary rule-based standard, and decrease the strict and complex calculation requirements. As always when new accounting standards are implemented, it will have consequences of the audit approach and strategy. We find it interesting to examine the consequences of applying IFRS 9 instead of IAS 39 from an audit perspective for instance adjustments to the audit approach because of changes in the risk assessment and administrative procedures, internal control environment and related required documentation.The study is based on relevant theory, accounting standards and audit standards and interviews with relevant persons for which the implementation of IFRS 9 and the audit hereof will have an impact on their work. Moreover, several articles and comment letters have been read in connection with the preparation of the thesis for the best possible foundation to analyze and conclude on how to perform a reasonable and effective audit of hedge accounting under IFRS 9. To assess and analyze how to perform the best audit of hedge accounting under IFRS 9, we have throughout the thesis used a fictive case group to illustrate the practical utilization of the theory analyzed. Based on our analysis, it is our conviction that the documentation requirements for the entities have been slightly reduced compared to earlier, however, the work will be performed earlier in the process and will mainly be in the design and the implementation of the risk assessment will be increased, while the demanding effective tests will not be a mandatory requirement any longer. As IFRS 9 is more principle-based compared to the prior rule-based IAS 39, the auditor will to a great extent make use of audit documentation consisting of observation and inspection, while earlier one mainly made use of re-calculation and re-performance. This is primarily caused by the fact that when the entity applies IFRS 9, one will audit against a policy, while one earlier audited regulatory conditions. The processapplying hedge accounting will prospectively involve more employees than earlier, including the Board of Directors, why the hedging process/transaction flow will be more comprehensive, which certainly might result in more risks, but does not necessarily increase the extent of the audit procedures. If an entity has a well developed control environment, including a detailed risk management system with scope and limits, the extent of the audit will clearly be decreased. In contrast, for entities with doubtful entity level controls, the extent of the audit will be increased, as it is more difficult to test and assess the intention and the collaboration between the risk management policy and the actual hedges. Based on our analysis, it is our opinion that the extent of audit procedures to be performed will not change significantly, but will depend on the each entity. However, audit of financial statements in accordance with the new IFRS 9, phase 3, might cause some challenging tasks as it, per definition, is harder to obtain sufficient audit documentation when you are auditing accounting estimates and assessments, but will be counterbalanced by the audit procedures, which will be reduced later in the process.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2015
Number of pages134