Hedge accounting
Hedge accounting
Service

Hedge accounting

KPMG has extensive knowledge and experience advising clients on managing hedge accounting programs. We can show you how the new rules will impact existing hedges, reduce costs, and enable new hedging strategies.

ASU 2017-12 and IFRS 9: Shared goals, different methods

For some companies, hedge accounting is attractive in theory, but too cumbersome to execute in practice. When the IASB and FASB decided to simplify regulations, their aim was to align hedge accounting more closely with risk management and to provide more useful information about the purpose and effect of hedging instruments.

Set to take effect between 2018 and 2020, the new guidelines realize these goals in different ways. U.S. GAAP aims to offer targeted improvements to address specific practice issues, and public companies are already moving to comply. IFRS 9 is broader in scope and has greater potential impacts, so companies are taking more time for careful evaluation.

Whatever phase of the hedge accounting compliance process you are in, KPMG can act as your trusted advisor, offering guidance and insight along with technical expertise and proprietary tools created specifically for hedging. And our global reach means we're constantly following new developments in every region.

New opportunities for businesses, better reporting for investors
The new standards deliver clear benefits. For businesses, the time, effort and expense required to apply hedge accounting will be reduced, and new options for hedging will be more accessible. At the same time, investors will receive more accurate and timely financial reporting.

Unmatched experience in accounting and risk management
Whether you're familiar with hedge accounting or are considering it for the first time, KPMG's unmatched experience and global network of specialists can help you go beyond compliance to achieve real value. Our Accounting Advisory Services and Risk Analytics specialists work together to tailor our support to meet the individual needs of each client, across every region. Our approach includes key phases and deliverables including:

  • Initial assessment: We conduct a top-down summary assessment of existing risk levels and hedging activities, the impact of new standards, and potential new hedging methods and opportunities.
  • Disclosures: A report defines the expected presentation and disclosure requirements required by IFRS 9 and ASU 2017-12.
  • Risk management assessment: A detailed evaluation focused on strengthening risk management processes, whether embedded in funding, purchasing, inventory management, or sales.
  • Financial impact assessment: "What if" models designed to project hedge accounting's impact on financial results.
  • Data requirements: Data taxonomy identifies and defines data gaps to prepare financial statements under the new standards.
 

Phase 1: Assess

Gain a clear understanding of new U.S. and international standards, how they differ, and the implementation schedules for each one.


Watch-outs

  • Accounting and risk management processes must be robust enough to support new hedge accounting opportunities
  • Consider “cost of hedging” elements that may be excluded from certain hedging instruments

KPMG can help:

  •  Identify upcoming changes and their impact on existing hedges
  •  Assess new hedging opportunities and strategies
  •  Determine whether any risk components may be designated as hedged items


Phase 2: Design

Design a response that defines and documents your hedge accounting policy and aligns it with risk management objectives.


Watch-outs

  • Identify additional information and processes needed to meet expanded disclosure requirements
  • New standards may require upgraded systems for tracking hedges, measuring risk, and calculating fair value
KPMG can help:
  • Define revised accounting and risk management policies
  • Define new disclosure requirements
  • Create blueprints for IT system changes
  • Develop training modules


Phase 3: Implement

Complete and test design prototype, and put new processes and systems into operation.


Watch-outs

  • Align implementation plan to transition schedules by region and business type
  • Update management reporting and KPIs to reflect new hedge accounting strategy
  • Consider potential tax implications


KPMG can help

  • Prototype, test, and launch changes across functions, departments and systems
  • Reconcile and manage implementation to meet all regional requirements

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates.