derivative accounting

Derivative accounting is a nightmare. With over 200 derivative-related restatements in its first seven years. SFAS-133 was difficult enough for most companies. Additional changes to standards are making compliance even more difficult. SFAS-133 and SFAS-157 are now ASC 815 and 820, respectively. IAS-39 ( SFAS-133’s European twin) is becoming IFRS-9. Convergence and codification continue to drive changes to GAAP.

Although hedge decisions should not be held hostage by accounting rules, does it make sense to retain full-time specialists on-staff or outsource the practice as the need arises?

The decision to manage economic versus earnings volatility is a key driver in many hedge strategies. Having the correct documentation, test work, and disclosures in place to defend hedge accounting choices is a vital component of strategy implementation. However, the pace of change in derivative accounting and the scarcity of expertise have combined to render a full-time derivative accounting staff unaffordable for many companies.

Eco+Risk helps its clients by outsourcing hedge accounting functions which may be expensive to implement, but may add little value outside of restatement risk abatement. Prior to leaving public accounting, our resources spent multiple years serving hundreds of clients in both an audit and advisory capacity, including SEC and PCAOB reviews.

Sample outsourcing services include:

  • Fair value calculation and reporting;
  • Cash flow / fair value hedge documentation;
  • Effectiveness assessment and ineffectiveness measurements;
  • Regression templates and cash flow modeling for dollar-offset tests;
  • Hedge accounting policies and procedures;
  • Derivative disclosures, including ASC 815 (SFAS-133 and 161) and ASC 820 (SFAS-157); and
  • SFAS-157 / ASC 820 market reliability definition, assertion, and testing.