In a press release dated April 23, 2005, Canadian Natural Resources Limited (CNRL)

reported a loss of $679 million from cash flow hedges of its crude oil and natural gas production, for the quarter ended March 31, 2005.

CNRL reported that the hedges in question did not meet the requirements for hedge accounting. Consequently, they had to be fair-valued as at March 31 with the loss included in net income. The company indicated that fair value was determined by the hedges’

market values at March 31.

Required

a. The purpose of hedging is to shield the firm from the impacts of changing prices. If so, explain how a loss on cash flow hedging can arise in net income.

b. Suppose that CNRL's hedges had met the requirements for hedge accounting laid down by IAS 39 or SFAS 133 and were duly designated and accounted for by CNRL according to that standard. How would the $679 million loss be accounted for?

c. CNRL stated in its press release that the $679 million loss did not affect cash flows for the quarter ended March 31, 2005. As an investor in CNRL, do you find the information about the loss to be decision useful? Explain why or why not.