Hedge Accounting under IFRS

Duration:
2 days
Location:
Prague, NH Hotel Prague
    Learning Objectives

    During the course the delegates will:
  • Evaluate the effects of hedge accounting anomalies and restrictions contained in IAS 39
  • Obtain a broad overview of IFRS 9 with a focus on the key changes
  • Explore how the IASB has addressed hedge accounting anomalies and restrictions through IFRS 9
  • Conclude on whether IFRS 9 achieves the IASB's stated aims
Course Description

The current hedge accounting standards (IAS 39) include accounting and reporting requirements that often inhibit the provision of consistent and meaningful information to investors on the true economic effects of firms' hedging strategies. The long standing commitment of the International Accounting Standards Board (IASB) has been to replace IAS 39 with a new standard (IFRS 9) and, in so doing, remove the accounting anomalies and restrictions contained in IAS 39 that caused misalignments between the economic realities of hedges and the associated accounting and reporting treatment.

This 2 day course specifically focuses on the new hedge accounting and reporting standards contained in IFRS 9. It is intended for professionals who have experience of operating under IAS 39 and wish to gain in-depth understanding of what's new in IFRS 9 and the implications for the design, management and reporting of hedging strategies.

Who Should Attend

Delegates should have practical experience of working with IAS 39 in the design, implementation, processing and accounting & reporting of hedges. Consequently, it is suitable for delegates with backgrounds in finance, accounting, treasury, operations, risk management, audit, IT or compliance. It is also suitable for independent accountants, consultants and lawyers who advise firms on the design of hedging strategies and related accounting.

Methodology

A combination of classroom style lectures, ‘hands-on' exercises, presentation of worked examples and interactive discussion.

Session 1: Hedge Accounting - IAS 39 vs. IFRS 9 – What’s New?

  • Hedge accounting anomalies and restrictions contained in IAS 39:
    • The implications for financial reporting
    • The effect on hedging strategies
  • The principal aims of IFRS 9:
    • Move towards a principle based rather than a rule based approach
    • Closer alignment between risk management and hedge accounting
    • Enhanced presentation and new disclosure requirements
    • Incorporation of more hedging strategies into hedge accounting
  • The timeline for IFRS 9 implementation and current status

Session 2: A Brief Overview of IFRS 9 – Classification of Financial Assets

  • The tests that need to be applied:
    • Business model
    • Cash flow characteristics
  • Reclassifications
  • The ‘fair value’ option
  • Initial and subsequent measurement (IAS 39 vs. IFRS 9)

Session 3: Accounting for Derivatives and Embedded Derivatives

  • A comparison of IAS 39 and IFRS 9
  • The accounting treatment applied to derivatives
  • The treatment of embedded derivatives and the application of the ‘separation’ criteria

Session 4: An Overview of Hedge Accounting under IFRS 9

  • The different hedge types and their generic qualifying criteria, required documentation and accounting treatment:
    • Cash flow
    • Fair value
    • Net investment
  • The changes introduced by IFRS 9:
    • Fair value hedges and ‘Other Comprehensive Income’
    • Separate presentation of the effects of fair value hedges
    • Removal of artificial ‘bright line’ qualifying criteria
    • Treatment of option premiums

Day Two

Session 5: IFRS 9 Hedge Accounting – New Qualifying Criteria

  • Newly qualifying hedges incorporated into IFRS 9:
    • Risk components of non-financial items
    • Non-contractually specified inflation
    • Layer components and net positions
    • Aggregated exposures
    • Equity investments at fair value through other comprehensive income

Session 6: IFRS 9 Hedge Accounting – Effectiveness Assessment

  • Effectiveness at inception and ongoing
  • Qualitative / quantitative forward looking assessments
  • Economic relationship between hedging instrument and hedged item
  • The effect of credit risk
  • Maintenance of hedge ratios
  • Ensuring consistency between hedge purpose and accounting outcome

Session 7: IFRS 9 Hedge Accounting – Voluntary Terminations

  • Restrictions on voluntary termination
  • The rebalancing requirement and its application
  • Maintenance of required hedge ratios in compliance with effectiveness requirements

Session 8: IFRS 9 Hedge Accounting – New Fair Value Option

  • Application to credit exposures hedged with credit derivatives
  • Treatment of non-financial instruments, e.g. loan commitments
  • Qualifying criteria

Session 9: IFRS 9 Hedge Accounting – Cash Instruments

  • Designation of non-derivative financial assets or liabilities as hedges
  • Hedging relationships that apply

Session 10: Overview of Disclosure and Presentation Requirements

  • IFRS 9 - Additional disclosure requirements
  • IAS 32 - Financial Instruments: Presentation
  • IFRS 7 - Financial Instruments: Disclosures

Session 11: Implementation Challenges

  • Discussion... do the new hedge accounting standards meet the IASB’s stated aims?
  • Roll-out... internal communication and education
  • When to adopt the new IFRS 9 hedge accounting approach

Evaluation and Termination of the Course

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