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About the course
This two-day course will focus on accounting for derivatives and hedge accounting. It includes an analysis of fair value of derivatives on financial statements of corporates and application of hedge accounting in IFRS 9. In addition, the course covers an overview of key differences between IAS 39 and IFRS 9 hedge accounting since preparers can elect to continue with IAS 39 hedge accounting, pending completion of the International Accounting Standard Board’s project on dynamic risk management (macro-hedging). Participants are expected to have a basic understanding of financial statements.
Key Learning Outcomes:
- Understand the meaning of marked-to-market and what it encompasses
- Appreciate the accounting methodology for derivatives focusing on the impact of fair value movements on the financial statements of corporates
- Understand how hedge accounting works in IAS 39 and IFRS 9 and the impact on the financial statements of corporates
- Analyze the presentation and disclosure of financial instruments (including derivatives and hedge accounting) in the financial statements of corporates
The aim of this section is to provide an overview of the accounting for derivatives in financial statements.
- Overview of classification and measurement of financial assets and financial liabilities including derivatives in IAS 39
- Application of effective interest method for financial assets and financial liabilities
- Principles of how derivatives are accounted for
- Wrong-way risk versus right-way risk and how these are accounted for
- Analysis and accounting for embedded derivatives including separation criteria in IAS 39
- Exercise: Identification of derivatives in a corporate’s financials
Accounting for Fair Value
The aim of this section is to appreciate how fair value is accounted for and how this impacts the financial statements of corporates.
- Definition of fair value in IFRS 13
- Establishing fair value: Marked-to-market, marked-to-model
- How the accounting for derivatives impacts the statement of comprehensive income, statement of financial position and statement of cash flows
- Realized and unrealized gains and losses in the accounts: Swaps, forwards, futures and option contracts
- Exercise: Apply fair value accounting to derivatives in a corporate’s accounts
Hedge Accounting (IAS 39)
The aim of this section is to explain the classification of instruments as hedges, how these are accounted for under IAS 39 and analysis of the impact of hedge accounting on financial statements of corporates.
- Introduction to hedge accounting: Hedging relationships, hedged items and hedging instruments
- Different types of hedges: Definitions, accounting and analysis of impact of fair value hedge, cash flow hedge and net investment hedge on financial statements of corporates
- Overview of hedge effectiveness and ineffectiveness
- Pitfalls of hedge accounting
- Discontinuation of hedge accounting
- Impact on default probability and LGD
- Exercise: Application and analysis of impact of hedge accounting under IAS 39: Interest rate risk, foreign currency risk etc.
IFRS 9 Updates
The aim of this section is to explain the changes in IFRS 9.
- Classification and measurement of financial assets and financial liabilities in IFRS 9
- Embedded derivatives: Simplified approach in IFRS 9
- Reasons for changes to hedge accounting in IFRS 9 and how it impacts corporates
- Examples of additional hedged items and hedging instruments
- New criteria for hedge effectiveness testing and rebalancing
- Impact of transition to IFRS 9
Presentation and Disclosures (IFRS 7)
The aim of this section is to explain the presentation and disclosure requirements in relation to financial instruments in IFRS 7.
- Scope and objectives of disclosures
- Disclosures in relation to significance of financial instruments: Statement of financial position, income statement and equity, other disclosures
- Fair value hierarchy
- Nature and extent of risks arising from financial instruments: Qualitative and quantitative disclosures
Who should attend
The course is designed for those who use derivatives or hedge accounting under IFRS or are intending to do so in the future, including accountants, staff working in treasury, internal and external auditors, analysts and other finance professionals interested in learning about derivatives and hedge accounting.