CFOs have been busy hedging their interest risk exposures this year due to aggressive global increases in base rates. A common afterthought is accounting for the financial instruments executed.
This checklist is a helpful reminder of the hedge accounting requirements needed before and during EoFY. To run a successful hedge accounting program, you need to:
– Ensure the hedge qualifies for the preferential hedge accounting treatment.
– Designating the hedge in a hedge relationship and producing the formal hedge documentation that the auditors scrutinise.
– At the reporting date, you must prepare hedge effectiveness calculations which typically require access to valuations systems to run hypothetical swaps to ascertain the dollar value of the ineffectiveness.
Failure to produce these reports correctly could jeopardise your hedge accounting program, causing unwanted PnL volatility.
If this sounds like too much of a headache, outsourcing this technical work to an advisor is cost-effective and will save you time and energy when you are already under the pump. Please reach out if you would like assistance in this area.