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Hedge New Rules
- 1. IAS 39 Financial Instruments : Recognition and Measurement John Kidd Partner Financial Services Group
- 10. Foreign Currency Transaction – Example, Sequence 2/1/2004 Expected Sale Enter into sell USD buy AUD forward fx contract Recognition Date 10/4/2004 Record Sale Spot Rate plus gain/loss on fx contact Record Receivable Spot Rate Settle the USD forward Settle the USD receivable
- 11. Overview – Exposures Net investment in a foreign entity Cash flow Fair Value Exposure ?
- 24. Forecast Foreign Currency Transaction – Example Settle the USD forward Settle the USD receivable 1/2/2004 Forecast Sale Recognition Date 10/4/2004 Recognise Sale Recognise Accounts Receivable Hedged risk is FX cash flow exposure on receivable to be settled in 10 April. What is the accounting?
- 27. Forecasted Foreign Currency Transaction – Example, fair Value
- 34. Overview - Fair Value Hedge Accounting Hedging instrument Changes in fair value go to Net Profit Hedged item Fair value the hedged item due to the hedged risk and recognise changes in fair value in Net Profit Net Profit (net impact = ineffectiveness)
- 35. Overview - Cash Flow Hedge – Accounting (Method 1) Changes in Fair Value of Hedging Instrument Net Profit Separate component of Equity (reserve) Effective portion Ineffective portion Recognised with hedged item IAS 39.95
- 36. Overview - Cash Flow Hedge – Accounting ( Method 2 – Amendment ) Changes in Fair Value of Hedging Instrument Net Profit Separate component of Equity (reserve) Effective portion Ineffective portion Basis Adjustment to Hedged Item IAS 39.98(b)
- 37. Forecasted Foreign Currency Transaction – Example, High Level 1/2/2004 Forecast Sale Recognition Date 10/4/2004 Revalue fx contract to fair value through equity Record Sale. Revalue Accounts Receivable at spot through Net Profit Revalue fx contract to fair value through net profit Transfer equity to sales (net profit)
- 40. Other Issues and further Questions
Editor's Notes
- OPENING COMMENTS The following are applicable only if presented as stand-alone module Welcome participants Introduce yourself with special emphasis on practical experience If necessary - use introduction as an ice-breaker Introduce content map and objectives (details on next slide) Set learning environment guidelines (questions any time) Emphasise peer learning opportunities (working in pairs, sharing problems) Introduce Module Learning Objectives Understanding the rationale and conceptual logic of the Standards The impact of new requirements on financial instruments for both banks and non-banking entities Module opening comments In various jurisdiction, the Standards will change the practices of accounting for financial instruments dramatically. It adopts a prescriptive approach. It is preferable that participants have already followed a basic presentation of IAS 32 and IAS 39 (see 2 to 3 hour course) This module aims to provide a Level 2 knowledge of the IAS requirements on financial instruments. In some cases, the module provides further discussions, particularly applicable to financial institutions. These latter discussions are identified as Level 3. This module introduces the proposed changes to IAS 32 and IAS 39 that were published in June 2002. Date of review of module and approval by technical specialist: Date: 08/02