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IAS 39: Steps to
Compliance
SunGard's IAS 39 Solution promotes
full compliance with the rules of hedge accounting under IAS
39, enabling users to avoid increased income volatility from
mark-to-market of a derivative contract by allowing:
1.
Identification of hedge relationships that qualify for hedge
accounting
2.
Documentation of hedges according to IAS 39 rules
3.
Hedge simulation: prospective effectiveness tests
4.
Hedge accounting: retrospective effectiveness tests, G/L
entries
Step 1
Identify and define
hedge relationships that qualify for hedge accounting(cash
flow hedge, fair value hedge, macro fair value hedge) by
linking the hedging instrument and the corresponding hedged
item.
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Step
2
Documentation: The documentation should
include identification of the hedging instrument, the related
hedged item, the nature of risk being hedged, and how the
enterprise will assess the hedging instrument's
effectiveness.
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Step 3
Perform hedge
simulations and prospective effectiveness tests:
A)
Prospective Hedge Effectiveness Test- Before entering into a
hedge, institutions need to prove that the hedge is expected
to be effective throughout its lifetime. SunGard's solution
automatically assesses hedge effectiveness in any number of
user-defined future scenarios using any of the following
methods whic were proposed and accepted by independent
auditors and regulators:
Dollar offset method (ratio test)
Regression analysis
Risk reduction approach
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B) Simulate the effect of the hedge on your future earnings
under IAS 39 Hedge Accounting Rules- Within the dynamic income
simulation module, SunGard's solution applies hedge accounting
rules to all hedges as long as the designated hedge
relationships are valid. If any of them break, the accounting
treatment of hedged items automatically reverts back to
general IAS 39 accounting principles. This unique function
allows full analysis of the impact of hedging activities on
future earnings.
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Step 4
Generate the General
Ledger accounting entries: SunGard has integrated its ALM and
Back Office solutions to support the accounting tasks of IAS
39. This functionality enables an institution to:
Process all required general ledger entries under IAS 39
hedge accounting
Run retrospective hedge effectiveness tests for back
testing compliance
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Contact
BancWare for more information about the SunGard IAS 39
Solution
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