Distinguishing between "Hedging," and "Hedge
Accounting"
The word "hedging" is a broad and general term. In
contrast, FAS 133 uses the term "hedge accounting" as a
special accounting treatment that alters the normal
accounting for either (1) tlie gain or loss on the hedging
transaction (involving the use of a derivative) or (2) the
hedged item. The purpose of allowing hedge accounting is to
prevent the reporting in earnings in different periods of the
counterbalancing changes in (1) either the fair values or
expected cash flows of a hedged item and (2) the fair value of
the hedging transaction.
Accordingly, hedge accounting is defined as a special
accounting treatment that achieves concurrent recognition (in
earnings) on either (1) an immediate basis or (2) a delayed
basis, of counterbalancing gains and losses on both the
hedging transaction and the related hedged item.