This course is intended to give professionals a sound understanding of hedge accounting and reporting standards contained in IFRS 9, and the implications for the design, management and reporting of hedging strategies.

IAS 39 has been replaced with a new standard IFRS 9, which removes the restrictions and accounting anomalies contained in IAS 39 improving the reporting standards and transparency.

The requirements for derivatives and hedging are explained in clear, simple language supported with practical examples, discussion sessions and case studies. The participation of delegates is encouraged and they are also invited to bring their own cases and discuss the issues they face in applying hedge accounting and the standards.

• Risk managers
• Auditors
• Budget and forecast officers
• Accountants and financial controllers
• Analysts
• CFO and Finance Directors
• Investment bankers
• Corporate bankers
• Tax directors
• Corporate finance function
• Fund managers and investors
• Derivative sales executives
• Tax Managers/Directors

• Better understanding of hedge accounting requirements
• More cost effective hedging solutions
• Compliance with the hedge accounting requirements
• Enhanced processes and controls around hedge accounting

Introduction to hedge accounting

• What is hedging?
• What is hedge accounting?
• Hedge accounting under IAS 39
• Hedged items
• Designation of groups of items as hedged items
• Designation of financial items as hedged items
• Designation of non-financial items as hedged items

Hedging instruments

• Definition
• Derivative financial instruments
• Portions and proportion of a hedging instrument
• Hedging more than one risk with a single instrument
• Combination of derivative instruments
• Options as hedging instruments
• Dynamic hedging strategies
• Internal hedging instruments
• Offsetting internal hedging instruments

Accounting for hedging activities

• IAS 39 Accounting implications for:
• FX Forwards
• Interest rate swaps
• Cross currency swaps
• Standard vanilla options
• Derivatives – Difficulties of identifying whether certain transactions involve derivatives
• Embedded derivatives

The hedge accounting models

• Risk reduction and hedge accounting
• Fair value hedges – Definition
• Fair value hedge accounting
• Adjustments to hedged items
• Hedges of firm commitments
• Discontinuing fair value hedge accounting
• Case study/Work Group: Exercises and case studies for discussion and practical application

Cash flow hedges

• Definition
• Forecast transactions
• Cash flow hedge accounting
• Reclassifying gains and losses from equity
• Discontinuing cash flow hedge accounting

Net investment hedges

• Hedged items
• Hedging instruments
• Effectiveness testing
• Recycling on disposal of foreign operation
• Hedging with derivatives
• Hedging in individual or separate financial statements

Criteria for obtaining hedge accounting

• Documentation and designation
• Documentation relating to forecast transaction
• Example documentation

Hedge effectiveness

• Requirements for assessing effectiveness
• Assessment on a cumulative or a period-by-period basis
• Counterparty credit risk
• Entity credit risk
• Transactions costs
• Pre-payment risk

Methods used to assess hedge effectiveness

• Dollar terms comparison
• Hypothetical derivative method
• The benchmark rate method
• Sensitivity analysis method
• Regression analysis
• Comparison between regression analysis and dollar offset method
• Case study/Work Group: Practical application of the methods and discussion of challenges and issues

Hedge ineffectiveness

• Sources of hedge ineffectiveness
• Minimizing hedge ineffectiveness
• Measuring hedge ineffectiveness
• Change in fair value method
• Hedging foreign exchange risk
• Hedging a highly expected foreign sale with a forward
• Hedging a highly expected foreign sale with a tunnel

Hedging foreign subsidiaries

• Hedging intragroup foreign dividends
• Net investment hedge using a forward
• Net investment hedge using a cross-currency swap
• Net investment hedge using foreign currency debt

Hedging interest rate risk

• Hedging a floating-rate liability using an interest rate swap
• Hedging a floating-rate liability using a zero-cost collar
• Hedging a fixed-rate liability using an interest rate swap

Hedging foreign currency liabilities

• Hedging using cross-currency swaps

Hedging commodity risk

• Hedging commodity risk
• Own-use versus IAS 39 commodity contracts
• Hedging a commodity firm commitment with a forward
• Hedging a commodity inventory with a futures
• Hedging a highly expected purchase with futures
• Case study/Work Group: Case studies/practical exercises on hedging different risks

Hedge accounting disclosures

• Disclosure and presentation requirements under IFRS 7
• Financial instruments risk disclosures:
• Qualitative disclosures
• Quantitative disclosures
• Disclosures on transition to IFRS 9