Hedge Accounting

in Parallel Books

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 Business Background

Usage

Customizing

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 Business Background

You are accounting for your financial positions using several

standards in parallel

More than one of these standards has special rules for hedge
accounting (for example IAS 39 and FAS 133)

These standards however do not have the same rules, so when an

exposure is hedged you may have to document the hedging
differently or use different effectiveness methods
„ FAS 133 allow you to use a short cut method where you don‘t do an
effectiveness test, but assumes an effectiveness of 100% if all critical
terms match
„ IAS 39 does not allow for this, you would always have to test for
effectiveness

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 Business Background

Usage

Customizing

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 Parallel books in Hedge Management

In Hedge Management you only register the exposure once

Under Hedged Item you can register a hedge for each valuation area
„ You have to create an Hedge Item for each valuation area
„ You have to assign the hedging instrument to the Hedge Item for
each valuation area

You change from one valuation area to the next using the button:
„ You always see in the heading in which valuation area you are

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 Changing of Valuation Area

You can in Hedge

Management jump from
one valuation area to the
next by using the
button:

You then get a pop-up

where you can enter or
select another valid
valuation area.

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 Example Hedge in two Valuation Areas

The same exposure but different hedges

Valuation Area 001 Valuation Area 002

Two different hedges

have been saved (they
have the same
content)

The same derivative

has been assigned to
the hedge, but with
different effectiveness
test methods

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„ FAS 133 allows you to use the short cut method, when all critical term are the same, IAS does not
allow for this.
„ In this case we have an exposure for 40m UDS against EUR. As the money will be paid throughout
the month the sum has been set to the middle of the month.
„ It is however Saturday and you cannot settle on a Saturday, so the actual settlement day has been fixed
to 2 days later the 17 of July.
„ This will lead to a slight ineffectiveness for the hedge, but still under FAS 133 the shortcut method is
used whereas under IAS 39 this is not possible.

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 Effectiveness Test in two Valuation Areas

As different effectiveness test methods have been used in the

different valuation area, you may also get different result in the
effectiveness test

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 Accounting

The different results of the effectiveness tests leads to different

distribution between profit and loss and OCI (equity).

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„ In valuation area 001 the effectiveness was not 100% so only part of the loss on the derivative can be
posted to equity, the rest is posted to profit/loss.
„ In valuation area 002 the effectiveness was 100% so all of the loss is posted to equity (OCI)

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 Business Background

Usage

Customizing

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 Customizing

You have to define in customizing which valuation area you want to

activate for hedge management.

One of them has to be

set as the leading
valuation area

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„ You have here to define which valuation areas can be used for hedge accounting, by adding them to
the list.
„ One of the valuation areas you have to set as the leading area. It is for example used when you create
the exposure directly from the derivative in the tab-strip “Hedge Management“. The Hedged Item
created here will be created for the leading valuation area.

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 Colors
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Remov

R 0 239 77 191
G 51 159 77 191
B 102 0 77 191

R 124 87 190 80 33
G 30 129 102 34 87
B 31 174 0 71 71

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