Centrus Analytics Services – Treasury professionals are operating in a challenging environment of increased regulation, more diversity in terms of availability of investments and liabilities as well as greater demands in terms of disclosure requirements. This generally requires them to organise their teams and processes more efficiently from a risk management and timing perspective. Challenges such as increased productivity through automation of tasks and strengthening internal controls have been high on the treasury agenda recently. At Centrus, using the powerful combination of treasury and accounting expertise along with sophisticated treasury technology we have been supporting clients through the entire treasury management process. This is from the deal capturing stage, through to information processing and subsequently during the analysis and presentation of outputs.
Hedge accounting helps with the presentation of business performance to senior management and investors, regulators as well as covenant compliance in certain circumstances.
It is particularly relevant for IFRS reporting entities under IAS39/IFRS9 as well as entities that are reporting under the new UK GAAP, FRS102. Removing the impact arising from derivatives fair value volatility from the income statement or the I&E account to the reserves line in the Balance Sheet is a common objective for many public and private companies.
At Centrus, we have the treasury accounting expertise and use the hedge accounting module of TITAN™ to support our clients’ hedge accounting requirements. Our solution simplifies the process and generates all detailed compliance documentation and accounting entries.
Why is hedge accounting a risk management practice?
Every entity is exposed to business risks from its daily operations. Many of those risks have an impact on cash flows or the value of assets and liabilities, and, therefore, ultimately affect profit or loss. In order to mitigate these risk exposures, companies often enter into derivative contracts to hedge them. IFRS requires derivatives to be recorded at fair value through profit or loss. Whenever the hedged exposure is measured at amortised cost or is a forecast transaction that is not yet recorded in the financial statements, this would create an accounting mismatch. The idea of hedge accounting is to avoid this mismatch.
We have recently been working with multiple clients that are transitioning to FRS102 and have been helping them during each step of the process:
- Review of debt and derivatives portfolio
- Recommend hedge designations
- Support with drafting of hedge documentation
- Perform hedge effectiveness testing using different methods
- Provide accounting entries
- Explain accounting entries and calculation methodology to senior management and auditors
Centrus Hedge Accounting solution allows easy designation of hedges into cashflow, fair value or net investment hedge relationships and performs the relevant testing. Our experienced team monitors changes in the Standards daily to guarantee compliance at all times.
To work closely with our clients and their auditors in order to establish a hedge accounting methodology paper before we proceed with the actual portfolio set up and the associated production of accounting entries. We will always provide the results of our analysis supported with a comprehensive methodology report that include underlying assumptions.
Sample Case Study
Many of our housing clients have recently had to apply derivatives fair value accounting for the first time under incoming FRS102 financial instruments accounting rules. Centrus has helped a number of major national housing associations including Riverside to get to grips with the complexities…Read More Download Case Study