Accounting For Financial Instruments

By far the most complex and controversial accounting standards ever to be issued are IAS 39 and FASB 133.

Although many companies and banks may find these standards difficult to implement, it is nevertheless important that derivative practitioners become fully conversant with their requirements, implementation and more importantly, potential weaknesses with the standards.

This course is designed to give practitioners a good grounding on the fundamental of financial instruments, derivatives, how they are valued and more importantly, how they should appear on the financial statements. Hedge accounting, including macro and micro strategies will be discussed in detail.

In November 2009, the International Financial Reporting Standards (IFRS) committee introduced IFRS 9, designed to replace IAS 39 and to deal with the controversial issue of when assets should be shown on the balance sheet at fair value.

New rules were also introduced on Impairment accounting and 'off balance sheet' treatment. These latest developments will be covered on the seminar.

Course Content:

Background and Structure of Company Accounts
 Overview Profit and Loss Account
 Overview Balance Sheet
 Cash Flow Statement
 Disclosures
 Notes to the Accounts

Overview of Financial Instrument Accounting Standards
 Why were the standards devised?
 Off Balance Sheet Abuse and their consequences
 How FASB and IAS intend to cope with these abuses
 How do Accounting Standards contribute to hedging
 Market &Treasury vs. Accounting Risk

Why are Financial Instruments necessary
 Cross Currency Swaps
 Interest Rate Swaps
 Swaptions
 Options
 Bond Futures
 Index Swaps

Accounting for Future and Forward Contracts
 Initial and Variation Margin
 Differentiate and understand the distinction between Futures and Forwards contracts
 Identify problems affiliated with using futures for hedging
 Tick Points
 Basis Risk

International Financial Reporting Standard 9
 Changes to Available for Sale category
 Fair value v Accruals Accounting
 New Impairment
 Impact on hedge accounting

Development of Accounting Standards
 FASB vs. International Accounting Standards
 Understanding the distinction between hedge and trade accounting
 Learning how to apply marking to market principles
 Analyzing the role of the Statement of Total Gains and Realized Losses

Fair Value & Cash Flow Hedge Accounting
 Identifying ineffectiveness
 Splitting a hedge between effectiveness and ineffectiveness
 Excluding spot forward differential
 Addressing documentation issues

Embedded Derivatives and Structured Products
 Breaking down contracts between vanilla bonds and derivatives
 Interest rate exposure
 Regular way vs. derivative transactions
 Guidance on when to break down structured instruments

How do Traders Price Derivatives
 Using market data to price derivatives
 Learning the basics about spot and forward rates of interest
 Present value and future value
 Pricing derivatives on the basis of hedge costs

Dealing with Structured Products, Exotic and Credit Derivatives
 Development of Market
 Marking to market products
 Hedge vs. Trade Accounting
 Use of the OCI/STRGL accounts

Market and Credit Risk Management Techniques
 Measuring market risk and credit risk on a portfolio basis
 Volatility - as measured by Value at Risk
 Hedging exposures as opposed to hedging assets and liabilities
 Portfolio risk hedging vs. Accounting risk hedging - understanding the issues

Documentation Processes that qualify for Hedge Accounting
 Effective hedging
 Matters to appear in documentation
 Regression analysis
 Testing for effectiveness -- 80% / 125% rule

FASB and Securitization
 Benefits off securitization
 Determining the difficulty from hedging with plain vanilla swaps
 Understanding the use of tailor made amortizing swaps
 Constructing amortization swaps from plain vanilla swaps
 Present value basis point calculations

Dealing with Credit Risk
 Measuring Credit Risk
 Basel Committee on methods to measure credit risk
 Credit Derivatives
 Total Return Swaps and Credit Default Swaps
 How the Accounting Standards Deal with Credit Derivatives

Delivery:	In house
Category:	Accountancy