Financial Statement Outcomes When Alternative Derivative Hedging Designations Exist

Abstract

When alternate reporting methods exist, financial statement preparers tend to select methods that provide more favorable results.  Certain hedging transactions may be designated as either a fair value hedge or a cash flow hedge.  Both designations achieve the objective of matching the gain <loss> on the derivative with the loss <gain> on the hedged item in the same reporting period.  However, the cash flow hedge accounting tends to create a greater appearance of equity volatility.