On February 25, 2015, the FASB issued a proposed accounting standards update to Topic 815, Derivatives and Hedging, regarding financial statement disclosures for hybrid financial instruments with bifurcated embedded derivatives. The proposed update would require additional disclosures in the notes to the financial statements showing the relationship between each bifurcated embedded derivative and its related […]
Interest rate swaps start and end at zero value. The changes that happen in between can create a wild and bumpy ride. Swaps change for two reasons: Time – making/receiving payments – and interest rates. With an upward sloping yield curve with an expectation of rising rates in the future, a pay fixed-receive variable swap […]
The European Union’s initiation of quantitative easing (QE) raises concerns about the state of Europe’s economies, and Japan has just released lower than expected GDP growth associated with its “Abenomics” program. These macroeconomic indicators should signal a review of your existing hedge notionals. A typical corporate hedge strategy is to layer on hedges over time. […]
Currency and risk management has long been a “black box” for the C-suite. It’s time for treasurers to try to change that. That’s no easy task, of course. But bringing to the table a thorough understanding of how currencies have and will impact financial statements goes a long way toward accomplishing that goal.
With the change to the new year you should make sure you have your calendar set up for 2015 and beyond in Capella. To update your calendar simply go to Company Setup window Accounting Periods tab and click on the “New FY” button. Capella will prompt you on what information it may need to establish the new period […]
We’re only a few weeks into 2015, and it’s already been an eventful year in the world of foreign currency. Volatility has been the rule, with the ruble in a free fall, the Swiss central bank abandoning the franc’s exchange rate peg to the euro, and the steep appreciation of the USD against almost every […]
The current U.S. Dollar strength surprised many, given the recent loose monetary policy of the “QE Era” Fed. Hedgers, however, know that the expected change is rarely the same as actual change in currency markets today. At last look, the Yen was trading at 117, the Euro 1.18 and the Canadian Dollar at 1.20. How […]
One of 2014’s most significant corporate trends was the splitting of large public companies. Agilent Technologies, eBay, Hewlett-Packard, Symantec and more have (or will be) broken up into two new firms. There are, obviously, many factors to consider when a company splits. It is important, however, that issues related to foreign currency risk not be […]
As many of you prepare for year-end audits, we would like to share our expectations on where auditors will focus, and highlight key controls in a derivative environment. To uncover audit direction and focus, we looked to the 2014 PCAOB findings (available here) related to their reviews of 2013 audits performed by the Big 4.
When establishing a new cash flow hedge relationship, it is critical to determine the proper hedge period. There is, however, no single, hard and fast answer to this question; the appropriate hedge period can vary, based on four key variables. Foremost among these is the predictability of the anticipated hedged item. Foreign salaries (and other […]
When implementing a cash flow hedge program, a major consideration is whether or not to include time value components (premiums for options, forward points for forwards, etc.) within hedge relationships. Doing so is elective from an accounting perspective; however, there are real-world circumstances and consequences to consider when making the decision. There is a common […]
From risk management to FX best practices, this month’s 2014 AFP Annual Conference in Washington, D.C., addressed many of the hottest topics in the world of treasury and finance. Featuring more than a dozen speakers (including former Federal Reserve chairman Ben Bernanke, New York Times columnist Thomas L. Friedman and former FBI director Robert Mueller), […]
Over the last decade and a half, improving Treasury and Accounting technology has allowed corporations to streamline operations, eliminate redundant work and markedly improve controls. This post will examine two key areas in which Treasury is benefiting from technological advances that were essentially unheard of as late as 2000: hedge accounting and derivative lifecycle management. […]
More and more companies are using back-to-back structures when they trade FX contracts. In a back-to-back transaction, the parent company executes the trade with the outside counterparty, but a subsidiary has the underlying FX exposure. The parent, through a back-to-back trade, acts as the counterparty for the subsidiary’s hedge. These internal trades can be quite […]
Rolling contracts is a common practice – either due to changes in forecast or as part of a structured rolling program. This can create accounting complexities for designated hedges. First, new documentation must be prepared for the rolled-to contract, even though it is essentially a continuation of the previous hedge relationship. Also, when the contract […]