Hedge Accounting Techniques: Derivatives & Hedge Accounting

In this article, we will give a brief outline of the various Hedge Accounting Techniques and topics to be covered in the Hedge Accounting Techniques. As the world has seen a big downfall recently and most of it is courtesy of the derivatives, it is very very important for a financial professional to be familiar with the Derivatives & Hedge Accounting Techniques. Although a full detailed course spanning over a year is required for anyone to become a master of Risk Management, but this article will provide the essential details about which all topics one should be looking for while attending a Course on Hedge Accounting Techniques.
Let's begin with the basics for the Hedge Accounting:

Overview of Derivative Products and Structures: First, the beginning of the topic will be an intro to the various derivative products and how they fit into the accounting structure. The derivates covered fall into the segment of:

--  Interest Rate Derivatives and Hedging using IR Derivatives

--  Foreign Exchange Derivatives & Hedging

--  Commodity Derivatives and Hedging

--  Equity Derivatives and Hedging

--  Credit Derivatives and Hedging

Accounting for Derivatives Not in Hedge Relationships :
Though there may not be any hedging for certain financial transactions, traders or organizzations may still get into Derivative transactions. This module will cover those cases.

Hedge Accounting: Here the introduction to Hedging and the Hedge Accounting begins and covered under the following topics:

--  Brief Outline of Hedge Accounting under FAS 133 & IAS 39

--  Hedge Types: Here we talk about the Fair Value, the Cash Flow and Net Investment numbers and how to ascertain them

--  Performing Hedge Effectiveness: Measurement & Assessment of Hedging

--  Sample Journal Entries for each Hedge Type: A sample case and study

--  Other Comprehensive Income Accounting and Amortization of Balances


Fair Value Accounting: Getting to the right numbers in accounting for derivatives and hedging in the right way.

--  Measuring Fair Value

--  Credit Considerations

--  New Accounting Standards; SFAS 157, SFAS 159, and recent FRS: Intro to the newly introduced Accounting standard with respect to Derivatives and Hedge Accounting

Differences in International Standards; IAS 39 : The various differences in the international standard followed across the globe


Reporting and Disclosure:

--  Appearance on Financial Statements; Derivatives in Hedge Relationships

--  Footnote Disclosure Requirements

--  Effect of New SFAS 161 Guidance in 2009


Operational Challenges:

--  Marrying Accounting Policy with Operational Processes

--  Timing Constraints and Implementing New Strategies

--  Regression Analysis