Abstract
The requirement to assess hedge effectiveness in Statement 133 is critical in qualifying for “special” hedge accounting. But this requirement may be the most onerous of the statement because of the time and effort that are necessary to successfully comply. FAS 133 anticipates the use of certain tests to demonstrate that the hedge “offsets substantially all” of the variability in the hedged item. An interpretation of the standard allows these tests to “be based on regression or other statistical analysis of past changes in fair values or cash flows as well as other relevant information.” This article examines regression as a statistical approach to support hedge accounting and includes a review of the applicable statistical concepts necessary to produce a valid analysis.
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