Hedge accounting was introduced with IAR 39 and its objective was to reduce the volatility that options and other derivatives cause to the income statement. An option is usually purchased when a a company was to hedge against potential fluctuations of the price of a security. Under conventional accounting standards, the value of the hedging derivative and the security would be reported separately IAS 39 requires the merging of the value of these two items so that the net effect of any value movement would be mitigated.