Special hedge accounting is an elective accounting treatment under U.S. and International accounting principles. An organization must first qualify for special hedge accounting and then follow ongoing compliance requirements to remain qualified.
LIBOR is being phased out through 2021, and the Secured Overnight Financing Rate (SOFR) was selected as the preferred LIBOR replacement by the Alternative Reference Rates Committee (ARRC) in June 2017.
As LIBOR is phased out, reference rate reform will identify new and alternative reference index rates for financial instruments, including the Secured Overnight Financing Rate (SOFR).
As a U.S. company, your accounting team might not realize that hedge accounting under U.S. GAAP may not satisfy local international regulations and requirements. So, just as you get a handle on ASC 815 cash flow hedge accounting in the U.S., your international subsidiaries ask you to comply with IFRS 9 for local statutory purposes.
One of the most difficult and frustrating exercises in treasury is understanding and communicating the results of a balance sheet hedge program.
The treasury department of an organization is often responsible for mitigating foreign currency, interest rate and commodity price risk. Most of the derivatives used to manage that risk are negotiated by Treasury … but this is not always the case for commodity risk management.
It’s mission-critical for companies to protect their margins, revenues, and expenses from unnecessary volatility. A lot of the time, volatility comes from currency changes — or, foreign exchange risk.
Most treasury professionals are comfortable gathering and netting down same currency exposures that go in opposite directions.
Translation and transaction accounting are often confused for one another — but the difference between them is important. How can you tell them apart?
If your company transacts internationally, you know you need to use exchange rates to not only convert foreign currency transactions from the local currency into USD but also to translate foreign currency financial statements.
Cash flow risk is defined as the variability of functional cash flows for an anticipated transaction or on an existing asset/liability due to a particular risk (in this case, foreign currency risk).
In the late 1990s and into the early 2000s, the spreadsheet was the treasury and accounting tool of choice. Computer programs were still relatively primitive, and the smart phone had not yet arrived. Business professionals leaned heavily on spreadsheets due to their flexibility, powerful set of available formulas and relative ease of use.
ASC 830 provides guidelines on how to determine the functional currency of an entity. This is typically an election made by management based on the economic environment in which the company operates — but the process is more complex than that.
David Bowman with the Federal Reserve Board has asked the Association for Finance Professionals (AFP) to be the voice of Corporate Treasury in terms of addressing LIBOR for the Alternative Reference Rates Committee (ARRC) as part of the Coordination Subgroup.
Treasuries use cash pooling — also known as a cash sweeping system — to provide liquidity to legal entities, aggregate cash for investment or to accelerate debt repayment.