IFRS Overview for Derivatives and Hedging (2 days)

Introduction

This comprehensive two-day course provides an in-depth review of the current IFRS accounting and reporting requirements for derivatives and hedging.

IFRS 9 has replaced IAS 39 for annual periods beginning on or after 1 January 2018. The organizations can however elect to continue with IAS 39 hedge accounting until the IASB’s separate project on macro hedging is completed. IFRS 9 hedge accounting has a significant impact on financial and non-financial organizations and makes hedge accounting widely available. It is therefore important for entities to understand the hedge accounting principles in IFRS 9 .

The requirements for derivatives and hedging are explained in clear, simple language and illustrated with corporate annual reports and other real-world examples. Valuations, hedge documentation processes, effectiveness testing, and journal entry outcomes are explained and illustrated by the specialist instructor.

This program answers questions such as:

• What are the requirements for hedge accounting?
• How does classification of financial instruments affect the decision to use hedge accounting?
• What is fair value?
• What are the hedge accounting documentation requirements?
• How is hedge effectiveness designed and tested?
• How can hedge engineering work to achieve better results?
• How are embedded derivatives identified and accounted for?
• What are the principal similarities and differences between US GAAP and IFRSs in the area of derivatives and hedge accounting?

Learning Objectives

• Understand the reasons why companies hedge
• Construct a successful hedge and use hedge engineering to achieve better results
• Measure hedge effectiveness and ineffectiveness
• Identify and account for the following hedges: fair value hedges, cash flow hedges, net investment hedges and portfolio hedges of interest rate risk (macro hedges)
• Identify and analyze embedded derivatives
• Determine the appropriate treatment of embedded derivatives under IAS 39 and IFRS 9
• Discuss the latest developments on the macro-hedging standard and interest rate benchmark reforms

Who Should Attend

This course is primarily designed for those who use derivatives and hedge accounting under IFRS in their company or are considering doing so in the future:

• Accountants in an investment bank or treasury operation/internal audit in a bank
• Individuals working in non-banking entities where they are considering hedge accounting for the first time
• Industry controllers, external auditors, analysts and other finance professionals who are interested in learning about derivatives and hedge accounting

Topics

• IFRS 9 Financial Instruments
  • Classification and measurement
  • Effective interest method
• Derivatives
  • Analysis and examples of common derivatives (including options, interest rate swaps, currency swaps, forwards and futures)
    • Cash flows
    • Variations of ‘standard’ derivative contracts
    • Techniques for measuring fair values
  • Accounting for derivatives
• Embedded Derivatives
  • Analysis and examples of embedded derivatives in debt host contracts, equity host contracts, and purchase/sale contracts
  • Accounting for embedded derivatives
    • Determining how embedded derivatives affect the ‘cash flow characteristics’ test under IFRS 9
    • Determining the separation conditions
    • Allocating the initial carrying amount to embedded derivatives that are separated
• Hedging
  • Analysis and examples of common hedging relationships
    • Hedged items
    • Hedging instruments
  • Definition and mechanics of fair value, cash flow and net investment hedges
  • Examples (commodity contracts, interest rate and forex risk exposures)
• Hedge accounting (IAS 39)
  • Measuring and testing hedge effectiveness
  • Measuring and accounting for hedge ineffectiveness
  • Discontinuation of hedge accounting
• IFRS 9 Hedge Accounting
  • Overview of the hedge accounting framework
  • Alignment with risk management policies
  • Hedge documentation
  • Hedged items
  • Hedging instruments
  • Effectiveness assessment and rebalancing
  • Recording hedge effectiveness
  • Group and net positions
  • Transitional issues and disclosures
• Presentation and Disclosures (IFRS 7)
• Updates
  • Macro hedge accounting
  • Interest rate benchmark reforms

Teaching Method

• Group live instruction, cases, examples, group work, open discussions
• Descriptions and explanations of accounting principles
• Analysis and mechanics of common derivative products and hedging relationships
• Practical illustrations using model journal entries, model financial statement disclosures, case studies, and real-world examples
• Analysis of IFRS 9 hedge accounting, including the impact of transition from IAS 39
• Interactive participation is encouraged
• All participants receive a comprehensive binder containing copies of the presentation slides, handouts and other course materials
• Electronic copies of exercise and case study solutions will be available to participants

Instructors

Venue

CPE/CPD Accreditation

IASeminars is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

 

Field of study: Accounting

Prerequisites

A basic understanding of IFRS (or US GAAP) accounting and reporting principles for corporate entities. No advance preparation is required for this course.