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While the general rules for valuation call for hedging derivatives to be recognised at fair value and for value adjustments to be captured as directly affecting net income, changes in fair value – in so far as they lead to a book value that lies above the cost of purchase – are to be recognised as not affecting net income. If there were no accounting regulations, hedging relationships would lead to uneven P&L effects in this case. Therefore, the aim of the hedge accounting regulations in IAS 39 and IFRS 9 is to capture the value changes of the hedging instruments and the hedged items as largely compensating each other and as affecting or not affecting net income to the same degree.
The Flex Finance FlexFinance hedge solution fully supports the hedge management requirements of IFRS and reduces the P&L effects of the Mixed Model Approach.
The Flex Finance FlexFinance blueprint for Hedge offers users a solution that covers the full lifecycle of a hedge from designation to termination.
It fully supports IFRS requirements for documentation and the audit trail of a hedge relationship.
The effectiveness test can be carried out daily and its results can be tracked to the individual deal level via drilldown. The effectiveness tests can also be manually overridden whenever ineffectiveness should occur.
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- Dollar Offset Method (ratio analysis)
- Advanced Dollar Offset Method (threshold test + ratio analysis)
- Regression Analysis
- Benchmark Interest Rate Method
- Effectiveness Monitoring: It can be configured if the retrospective (mandatory for IAS39IAS 39) effectiveness and/or solely the prospective effectiveness (mandatory for IFRS9/IAS39) of the hedging relationship are checked. These checks can be performed at the beginning of and during the deal term.
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Different hedge types are permitted under hedge accounting. Flex Finance FlexFinance supports the creation of
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The accounting practice in the Jabatix Finance FlexFinance Hedge Manager for hedged items and hedging instruments in a cash flow hedge fulfils the requirements for Hedge Accounting under IFRS. The hedged item is still valued and accounted for in accordance with the regulations in force while the hedging instrument is designated at full fair value and is disclosed at this value on the balance sheet.
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Safeguards against different types of risk can be implemented for one hedge. Jabatix Finance FlexFinance supports hedging against the following types of risk:
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