Volatility In The Rand – Is Hedge Accounting A Feasible Solution?

The recent volatility in the South African rand (ZAR) has seen many local corporates scrambling to control the impact of the dwindling value of the local currency on their financial results. The exchange rate to the USD has fluctuated widely in the past five years, from a low of R6.6 to as high as R10.6, an over 60 percent movement. This is not a new development in the local market but has been pronounced over the past year.

Key points

• The SA economy, as a net importer, is highly impacted by these changes.
• As the rand devalues, the cost of importing foreign goods in local currency rises, creating additional inflationary pressures.
• The differing accounting recognition and measurement criteria applied to various components of a hedge relationship create volatility in the financial reporting