CFM24410 | Accounting for corporate finance: derivative contracts: accounting for specific derivatives under Old UK GAAP (excluding FRS 26)

The following guidance covers Old UK GAAP (applied before 2015) where FRS 26 was not applied.

Accounting for specific derivatives

As explained at CFM13010 onwards, a number of financial risks can be managed through the use of derivatives. The two most common types of risk that you are likely to encounter are:

• foreign exchange risk

• interest rate risk.

This section of the guidance thus focuses on these two areas and assumes that these financial instruments are used for hedging purposes. Instruments used for speculative purposes are briefly considered at CFM24440.

The principal methods of hedging both foreign exchange and interest rate risks are:

• forward contracts

• swaps

• options