About this Course

Accounting for derivatives often poses considerable challenges to practicing accountants. This is because derivative assets and liabilities do not behave the same way as non-derivative assets and liabilities. For example a non-derivative asset will be measured at an initial positive value and any subsequent changes in that initial value cannot reduce the assets to below zero thus will not create liabilities. Contrast this with a derivative contract, it often will have an initial value of zero and subsequently can change value from positive (asset) to negative (liability) and vice versa.

A derivative contract is the basic building block for hedging activities, in financial reporting it is used to manage financial risks such as interest rates and foreign exchange fluctuation risks. Hedge accounting is an accounting procedure to account for a derivative contract that is designated as a hedge instruments to hedge against a particular financial risk. The double entries can sometime be complex depending on the purpose of the hedging activities. For example certain derivative contracts are accounted for under cash flow hedge while others are accounted for under fair value hedge, or sometime a single derivative contract can change accounting requirement from cash flow hedge to fair value hedge. In addition there are also the complexity of net investment hedge in the separate financial statement and consolidate financial statement of the investor.

This is an introductory seminar for derivative accounting including the valuation of commonly used derivatives. The seminar also covers the accounting requirements for various hedging activities.

The objectives of this seminar are:

• Using easy to understand illustrations to explain the basic double entries for derivative contracts
  
• To provide an understanding of the mathematics used in valuing derivatives
  
• To provide practical guidance for set up accounting systems to record the double entries for derivatives contracts
  
• To provide a step-by-step guide on setting up the accounting system for various hedging activities
  
• After attending this workshop delegates shall be able to confidently account for derivative contracts, hedging activities and an understanding to the mathematics involved
  

Programme Outline 

• Accounting for derivative contracts
  
• Set up derivative accounting procedures for:
  

              - Foreign currency contracts

              - Interest rate contracts

• Accounting for hedging activities:
  

              - Understanding basic hedging requirements

              - Preparing hedge documentations

              - What derivative contracts qualify for hedging

              - Understanding the rules of hedge accounting

              - Types of hedge accounting procedures:

                    - Fair value hedge

                    - Cash flow hedge

                    - Net investment hedge

              - Interaction between cash flow hedge and fair value hedge

• The accounting process for specific business activities
  

              - Managing currency fluctuation of receivables and payables

              - Using non-derivative currency contract for net-investment hedge

                    - Borrowing in a foreign currency to invest in a foreign subsidiary with the same foreign currency borrowed

              - Managing interest rates fluctuation

                    - Principal swap

                    - Coupon swap

              - Managing commitment contracts using derivative

                    - Accounting for hedging activities to manage purchase order contracts for non-financial assets

                    - How to use basis adjustment under cash flow hedge

• Valuation of Commonly Used Derivatives
  

              - Understanding term structure of interest rates

              - Fair value of currency forward contracts

              - Fair value of options

              - Fair value of interest rates futures

              - Fair value of swaps

Intended For

This Foundation to Intermediate Level programme suitable for Accounting, Audit and Finance Professionals.

Those who are keen to seek clarity and achieve a deeper understanding of the accounting requirements for various hedging activities are welcome to attend.

Training Methodology

Practical case studies and interactive discussions

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