hedge accounting is an accounting practice. Many financial institutions and companies (entities) use derivative financial instruments to hedge different risks (such as interest rate risk, foreign exchange risk, commodity risk, etc.).

through hedge accounting, the accounting recognition of the gains and losses of financial market hedging is postponed until the corresponding gains and losses of basic risk exposure are recognized. Because this method enables companies to include hedging costs in the cost base of risk exposure, companies generally prefer to use it. This method matches the income with the loss write-off, thus reducing the volatility of profits and meeting the purpose of hedging.