CFM24440 - Accounting for corporate finance: derivative contracts: speculative instruments under Old UK GAAP (excluding FRS 26)

Speculative instruments

Holding derivatives for speculative purposes is relatively uncommon. The most common purpose for holding derivatives is to manage some form of risk faced by a business. However, businesses will sometimes wish to gain exposure to some form of risk for speculative purposes, or may be left with a naked derivative exposure when the underlying hedged item in a hedging transaction is realised/derecognised, and the hedging derivative continues to be held.

Under IFRS, New UK GAAP and Old UK GAAP (including FRS 26), speculative derivatives are normally required to be measured at fair value, with gains and losses recognised in profit and loss. The same approach was generally also applied under Old UK GAAP (excluding FRS 26).