...
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 hedge solution fully supports the hedge management requirements of IFRS and reduces the P&L effects of the Mixed Model Approach.
The Flex Finance 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.
The blueprint “Hedge” entails the following components.
- Hedge Management
- Effectiveness Test
- IFRS-compliant effectiveness testing (prospective and optional retrospective)
- Hedge Financial Accounting
- Rule-based generation of debit/credit entries
- Hedge Reporting
The components of the Hedge blueprint can be combined and completed with additional components provided by the blueprint “IFRS 9 Valuation". Components for valuation ensure the calculation of fine granular valuation elements. These valuation elements form the input for the effectiveness test, hedge financial accounting and reporting.
Different hedge types are permitted under hedge accounting. Jabatix Finance supports the creation of fair value hedges and cash flow hedges.
...