Peeling away financial reporting issues one layer at a time

Hedge Accounting and Derivatives: The Essentials


Introduction to Derivatives

  • Forwards and futures contracts
  • Interest rate swaps
  • Options

Fundamental Concepts of ASC 815 (Derivatives and Hedging)

  • Background and overview of ASC 815
  • The four cornerstones of accounting for derivatives and hedging
  • The accounting definition of “derivative” — and why we care
  • Key terms and concepts

“Fair Value” and “Cash Flow” Hedge Accounting

  • Definitions
  • Purpose
  • Qualifying criteria
  • Documentation requirements
  • Overview of common examples
  • Comparing cash flow hedges to fair value hedges

Foreign Currency Hedges

  • Unique exceptions available for foreign currency hedges
  • Additional qualifying criteria
  • Overview of common examples
  • Intercompany arrangements
  • Hedging a net investment in foreign operations

Hedge Effectiveness Testing and Measurement

  • Required assessments
  • Excludable components when assessing hedge effectiveness
  • Common causes of ineffectiveness
  • Dealing with ineffectiveness

Embedded Derivatives

  • Determining when to bifurcate an embedded derivative from its “host” contract
  • The “clearly and closely related” criteria
  • Examples

Overview of Disclosure Requirements

  • Notes to the financial statements
  • Market risk disclosures
  • MD&A