 | 12 Jul 2010 On 31 July 2008, the International Accounting Standards Board (IASB) published an amendment to IAS 39 Financial Instruments: Recognition and Measurement providing clarification and guidance for identifying inflation as a hedged risk. Prior to this amendment, IASB guidelines were unclear regarding the hedging of inflation. The following paper examines recent amendments to IAS 39 that discuss the principles that determine whether a hedged risk is eligible for designation. Click here to learn more about the identifying inflation as a hedged risk >>
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 | 01 Jun 2010 The adoption of IFRS for Canadian companies is in full swing. As of January 1, 2010, Canadian companies are required to file financial statements under IFRS. Although Canadian GAAP and IFRS are similar, there are three main differences that have posed a challenge for companies: effectiveness testing, hedge accounting eligibility, and fair value measurement. While not an exhaustive list, these issues have posed the greatest challenge for Canadian corporations during the first quarter of 2010. The following paper clarifies some of the differences in hedge accounting between Canadian GAAP and IFRS and shares best practices for hedge accounting to help Canadian corporations navigate through the transition. Click here to learn more about the differences between Canadian GAAP and IFRS >>
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 | 24 May 2010 With the looming debt crisis in Europe, it is pertinent to assess what impact the recession has had on the accounting of derivatives? How have the mechanisms of mark to market and hedge accounting withstood market volatility and lower profits?
In this paper Reval examines the experiences of corporates one year after the global financial crisis and determines which accounting treatment gave the best return to companies and their investors. Click here to learn more about what impact the recession has had on the accounting of derivatives >>
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 | 24 May 2010 Hedge accounting was not immune to the challenges of the global financial crisis. Organisations that had achieved hedge accounting easily in the past began to fail the criteria laid out in IAS 39 and FAS 133. What were the root causes of these failures? Why were some organisations better prepared than others?
With markets getting jittery again from the debt crisis in Europe, this paper shares the failures and successes during the Global Financial Crisis (GFC) so companies can better prepare for the challenges of the future. Click here to learn more about what did and didn't work during the Global Financial Crisis >>
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 | 08 Apr 2010 This paper examines the issue of hedging sales revenue by commodity production, more specifically, production from commodity mining companies. Commodity producers face an evolving business cycle that, at various stages, requires them to implement markedly different hedging strategies. If managed properly, these strategies should capture the right blend of volatility and certainty to retain attractive amounts of risk for debt holders and equity investors. This paper will focus on the use of different types of derivatives and the stages in the life cycle where they are most appropriate. Click here to learn how commodity producers navigate risk management during various stages of the business life cycle >>
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 | 28 Oct 2009 Global infrastructure spending is expected to top a trillion dollars in 2010 as companies begin to reinvest in capital projects. While purchases and sales of foreign components are often part of new bridge, road and facility construction and power plant upgrades, multiple foreign currency derivatives used to hedge against these exposures can be difficult to track over a project’s lifetime. The difficulty in tracking these exposures occurs because of forecast errors in situations where payments or receipts are certain, but the timing is not. However, treasury departments can use foreign exchange derivatives and project hedge accounting to recognize revenue and manage hedge relationships with as much fluidity as a project timeline. The following paper examines ways to employ hedge accounting at the project level in order to achieve a good hedge accounting outcome, minimize earnings volatility and recognize revenue in conjunction with project milestones. Click here to read more about hedge accounting at the project level >>
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 | 28 Aug 2009 On May 28, 2009, the International Accounting Standards Board (IASB) released its long-awaited Exposure Draft on Fair Value Measurement. The standard is almost identical to the U.S. Financial Accounting Standards Board (FASB) Statement No. 157, Fair Value Measurements. As U.S. experience has demonstrated, the impact on corporate treasuries reporting under IFRS will be significant. Methodologies for calculating fair value will change, causing greater P&L volatility and increased hedge ineffectiveness. However, corporate treasurers will be able to leverage the lessons learnt and best practices of their U.S. counterparts. Click here to learn how proposed IASB fair value guidelines may impact corporate treasury >>
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 | 14 Jul 2009 In response to the U.S. government’s proposed creation of a comprehensive regulatory framework, Reval understands and agrees with the need to better regulate the OTC derivatives market. Better transparency, controls, and the ability to clear OTC derivative instruments would help prevent future systemic risk. However, the broad regulatory reform suggested for all OTC derivatives may in fact increase risk in the system. Click here to learn more on the impact of the OTC derivatives reform on corporate users >>
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 | 12 Jun 2009 Until the recent global financial crisis, most non-financial companies and auditors largely ignored including the credit risk component when fair-valuing derivative positions. However, with volatile markets, plunging credit ratings, rising credit spreads and new accounting standards, properly measuring the true fair value is material and required. This paper summarizes where the Financial Accounting Standards Board and International Financial Reporting Standards have clarified the need to measure the credit risk for fair values. Click here to for more information on fair valuing credit >>
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 | 02 Jun 2009 It is generally agreed that FAS 157 fair values require inclusion of a credit charge. This paper examines the impact of credit charges on FAS 133, in particular hedge effectiveness
assessment and measurement. Derivatives Implementation Guidance (DIG) rulings are reviewed for reference to credit and changes in credit. It is concluded that this year a “second wave” of auditor focus will be placed on the interaction between FAS 157 and 133. Click here for more information on the effects of FAS 157 on FAS 133 >>
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| 15 Apr 2009 Accurate accounting for a fair value hedge over the life cycle of a debt instrument requires an understanding of fair value basis adjustment calculations and how to ensure it is cleared out by maturity of designation of a fair value hedge. This paper explains the basis adjustment and methods for ensuring that it is fully amortized of the life of a hedge. Click here for more information on IR Fair Value Hedges >>
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 | 08 Apr 2009 EIC 173 clarifies application of CICA 3855 and 3865 to the calculation of fair values of certain financial assets and liabilities, including derivative instruments. The EIC concluded that “an entity’s own credit risk and the credit risk of the counterparty should be taken into account in determining the fair value of financial assets and financial liabilities, including derivative instruments.” While the need is clear, how pragmatic is it for entities to gather information about their own credit and that of their counterparty’s credit? This paper addresses alternative data sources to assess credit quality under EIC-173. In addition, Canadian specific issues are addressed along with the current credit and bond market climates. Click here for more information on EIC 173 >>
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 | 19 May 2008 This paper discusses issues around measuring and modelling commodity-related exposures for manufacturers who are trying to obtain favorable hedge accounting treatment under
FAS 133 or IAS 39 for commodity hedges of their commodity purchases for production. Unlike with interest rate hedging, commodities do not have a benchmark interest rate and the core commodity component cannot be isolated and hedged — only the finished product or part. Analytical and statistical techniques are required to model the commodity exposure; these can also be useful risk management techniques for other risks. Click here for more information on best practices for commodity hedging >>
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 | 01 Aug 2007 This paper addresses the implications that FAS 157 will have on end users of derivatives, with particular emphasis on how FAS 157 will affect assessment and measurement calculations that are required by FAS 133. US GAAP followers already reeling from the complex rules promulgated by FAS 133 will now have to deal with even more complexity with the enactment of this new standard. The standard will require US GAAP followers to now consider credit and liquidity when valuing derivatives and will increase documentation and disclosure requirements. Click here to for more information on the implications of FAS 157 >>
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 | 01 Jun 2007 Although FAS 133 has been in effect for a number of years, derivative accounting rules still cause some problems for companies hedging risk with derivatives. FASB Statement 133 requires companies to mark-to-market their derivatives on a periodic basis, which can result in P&L volatility. In the past, brokered CDs and other ‘off-market’ instruments often used the Short-Cut method to qualify for hedge accounting under FAS 133. Although the Short-Cut method is still in existence and allowed, most hedges do not meet the required criteria to assume 100% ‘perfect’ effectiveness and qualify for hedge accounting. For instance, when a yield curve is flat, or if interest rates are volatile, many issuers of fixed rate debt prefer to use Treasury Locks to hedge the benchmark interest rate exposure of their debt and leave the credit component open until the time of issuance. Unfortunately, T-Locks are not eligible for the Short-Cut method. The current strict interpretation of FAS 133 would not demonstrate compliance with this method, and Critical Terms Match would not result in perfect effectiveness. Thus, companies don’t want to face the risk of restatement and have adopted more analytical approaches to achieve hedge accounting through statistical analyses. Click here for more information on the challenges of hedging futures using the short-cut method >>
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 | 01 May 2007 This paper addresses the practical impact that derivative
users will face when complying with FAS 157 at the beginning
of 2008. The standard will require companies to consider
the true exit price of its financial instruments which
implies considering the accuracy and reliability of the price
as well as hard to determine credit and liquidity implications.
The reporting may also impact companies’ methods
for FAS 133 reporting and add further documentation and
presentation burdens on US GAAP followers. Click here for more information on the impact of FAS 157 on derivatives >>
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 | 27 Feb 2007 This paper discusses issues that corporations will face when complying with the new International Financial Reporting Standards (IFRS) 7: Financial Instruments - Disclosures. The
ruling may force companies to re-examine their approach to managing market, credit, and liquidity risks as future transparency will uncover poor approaches to risk management or reveal strategic advantages to competitors. Click here for more information on risk disclosure requirements under IFRS 7 >>
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 | 01 Oct 2006 IFRS 7 requires that sensitivity analysis be performed on a company’s financial instruments measuring the impact to changes in market rates to P&L and equity. Although companies may already be performing some type of sensitivity analysis, they may not be applying the analysis across all of their financial instruments. IFRS 7 requires that companies capture these instruments on a single platform and have models and market data to be able to calculate the shocks or VaR analysis depending on the method used. Therefore, companies will have to gather more complex data to obtain all of their financial instruments across different departments for any new market risk measures. IFRS 7 will hopefully force companies to re-examine their risk reporting methods for both market and business risk. The following paper will focus on sensitivity analysis approaches with credit risk. Please see Part II: Credit Risk Reporting Under IFRS 7 for further information pertaining to credit risk. Click here for more information on sensitivity analysis requirements under IFRS 7 >>
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| 01 Oct 2006 Despite the headaches imposed by IFRS 7, especially concerning credit risk, companies may want to revisit their approaches to measuring and monitoring market risk exposures. One of the most significant changes caused by IFRS 7 that will affect corporations is the impact of understanding their credit exposures across all financial instruments a company holds. For a large portion of corporations, credit risk has not been high on the list of business risks, although it is a risk always looming. The following paper will focus on credit risk reporting issues. Please see Part I: Sensitivity Analysis for Market Risk for further information pertaining to sensitivity analysis. Click here for more information on credit risk reporting under IFRS 7 >>
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 | 01 Oct 2006 In this article the author explains two approaches to hedge
accounting as required by IAS 39. The first is the dollar offset approach which as he points out, is easier to understand
but can result in undesirable swings in earnings volatility. The second is regression testing, which is more reliable but much more difficult to achieve and is also less ‘auditor friendly’. The article provides examples of each approach and assesses their effectiveness. Click here more information on approaching hedge accounting under IAS 39 >>
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| 02 Jun 2006 Although FAS 133 has been in effect for a number of years, derivative accounting rules still cause some problems for companies hedging risk with derivatives. FASB Statement 133 requires companies to mark-to-market their derivatives on a periodic basis, which can result in P&L volatility. In the past, brokered CDs and other ‘off-market’ instruments often used the Short-Cut method to qualify for hedge accounting under FAS 133. Although the Short-Cut method is still in existence and allowed, most hedges do not meet the required criteria to assume 100% ‘perfect’ effectiveness and qualify for hedge accounting. Thus, companies don’t want to face the risk of restatement from an accidental slip using this method and have begun to adopt more analytical approaches to achieve
hedge accounting, such as regression analysis. Click here for more information on the challenges of hedging brokered CDs with the short-cut method >>
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