Glossary

The critical terms match method is one of the qualitative techniques prescribed by the International Accounting Standards Board (IASB) to test the effectiveness of a hedging relationship. Critical terms matching is a qualitative method that does not require any calculations, unlike other methods like linear regression. Critical terms matching relies on a comparison between the terms of the hedged item and the terms of the hedging instrument: notional amounts, maturities, currencies and interest rates. It is used for simple transactions like a cash flow hedge with forward contracts.