Hedge Accounting per FASB

FAS 133, FAS 157 and Sarbanes-Oxley impose strict documentation and reporting requirements on companies using derivatives. Improper application of these standards can result in undesirable earnings volatility or potential restatements. It is critical to match the timing of your derivative against the hedged asset to ensure favorable and the most suitable accounting treatment. The steps necessary to comply with these strict accounting standards can seem overwhelming to those unfamiliar with hedge accounting.

In the wake of Dodd-Frank, US GAAP and IFRS regularly provide accounting guidance for derivatives and hedge accounting.  However, this guidance can be difficult to apply properly.  Improper application of these standards can result in undesirable earnings volatility or unexpected financial restatements. In fact, the steps necessary to comply with these strict accounting standards can seem overwhelming to those unfamiliar with hedge accounting.

DAG Hedge Accounting and Valuation Services
By outsourcing the necessary hedge accounting and valuation work to DAG, you can alleviate the burden imposed by these complex accounting standards and stay ahead of ever-changing requirements.  To ensure compliant and favorable accounting treatment, DAG provides comprehensive hedge accounting services, including:

  • All required documentation and data
  • Adherence Letters
  • ISDA Amendment Questionnaire
  • Dodd-Frank Terms Agreement
  • Initial hedge designation
  • Effectiveness testing
  • Ongoing journal entries
  • Portfolio management and policy implementation
  • Position-limit monitoring, credit limits, mandated margins
  • ISDA Amend Process (Manual/MARKIT)
  • Evaluation of Dodd-Frank Supplement Safe-Harbor Elections
  • Establishment of 5-Year documentation maintenance program
  • Evaluation of clearing alternatives and related agreements
  • Accuracy in reporting requirements

DAG’s hedge accounting solution helps clients fully comply with Dodd-Frank requirements when executing, amending, transferring, and/or terminating a derivative transaction.

Free Consultation: Outsourced Hedge Accounting and Valuation Services
In fact, DAG has partnered with clients on all types of transactions and scenarios, including:

  • Terminations – Terminating a hedge can occur for different reasons. For example, the underlying asset or liability may be sold, making the hedge obsolete; the hedge may expire naturally; or, the client determines that the hedge is no longer effective.  A termination will have an effect on revenues and expenses, and it will also result in a change in net position.
  • Re-designations – After a prescribed value date, the hedging relationship must be re-designated or dissolved, based on a management hedge decision. Re-designating a hedge is one of the most challenging areas of hedge accounting because of changes in the fair market value when switching from one hedge to another.
  • Mark-to-market valuations – The repeated adjustment of a derivative’s value is known as “marking to market”. This may result in significant swings in the profit and loss account. When handled properly, however, hedge accounting will balance out the changes in value.

Additionally, DAG provides expert valuation services, which serve as a check on bank statements.  DAG also calculates future hypothetical values based on “what-if” rate scenarios and potential market movements.

Contact DAG today to learn how we can provide the right hedge accounting solution to meet your needs.

DAG is an independent financial advisor serving the corporate, non-profit, tax-exempt, and municipal debt markets.  DAG helps implement the right hedge structure for you, at the right price, with the best terms.