This discussion provides a critical evaluation of the hedge accounting principles and real accounting practices. Hedge accounting is just a possible legal alternative for the company – it may voluntary decide whether to treat all derivatives as held for trading or will adopt the hedge accounting rules. The reason why companies mostly aim to apply hedge accounting is linked to tax deductibility, despite in real practice significant percentage of companies do not test the hedge effectiveness neither prepare the hedge documentation – however this is mostly done by non-audited SMEs. Numerous studies in our professional practice have dealt with the bond between the economic and the accounting concept of hedging (e.g. Pirchegger, 2006; Melumad et al., 1999; Barnes, 2001; Hughes et al., 2002; Jorgensen, 1997).

From all possible three alternatives of hedge accounting, widely used is a cash flow hedge. From practical point of view it mostly occurs, when (i) hedging the rent against loan payments; (ii) company has a loan with floating interest rate secured by an interest rate swap; and (iii) company has forward sales of foreign currency to hedge domestic payments (in local currency).

Practical position proves that the theory is far from the corporate reality and companies have to rely on professional preparations of hedge documentations and hedge effectiveness testing probably even more than during the era of IAS 39.

Jiří Strouhal (* 1980) is a Full Professor at Department of Finance and Accounting at Skoda Auto University Mladá Boleslav, Czechia. In 2005 he gained his Ph.D. in a field of Accounting and Financial Management.

His research interest covers financial reporting, accounting harmonisation, financial performance and financial securities valuation. Jiří is an author or co-author of more than 30 monographers and more than 100 research papers published in journals indexed in Web of Knowledge or Scopus. He also serves as an international expert for reviewing scientific projects (national and international schemes not limited only to EU COST Action) and for academic programmes quality evaluation.

He serves as a consultant for audit companies and for national offices (e.g. Czech Statistical Office). Between 2011 and 2021 he served as a President of the Association of Czech Professional Accountants. He is an author of a new scheme of the certification of accounting profession run by the Union of Accountants Czech Republic.