What is a key characteristic of hedge accounting?

Hedge accounting is primarily designed to improve the alignment of financial reporting with the economic reality of an entity's risk management activities. The key characteristic is that it allows entities to match the results of hedging instruments with the underlying transactions they are intended to hedge. This alignment means that gains and losses from the hedge are recognized in the same accounting period as the related losses or gains on the hedged item.

This matching principle helps in presenting a clearer and more accurate picture of an entity's financial performance and cash flows, particularly in volatile markets where the timing of gains and losses from hedging activities can significantly affect the reported results. Therefore, matching hedge results with underlying transactions clarifies the financial impact of risk management strategies, aiding users of financial statements in understanding how well an entity is managing its exposures.

The other options do not reflect the essence of hedge accounting. For instance, it does not guarantee a gain for the hedging entity; it is also applicable to both short-term and long-term instruments, and it does not specifically isolate operating income from non-operating income. These points further clarify why the correct characteristic of hedge accounting centers on the matching of hedge results and underlying transactions.