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Accounting for Derivatives in Practice under IFRS9

Day One

Conceptual Framework and Accounting for Equity Derivatives

  • Introduction to IFRS 9
  • Interaction with other IFRS standards

Case 1: Porsche: Acquisition of a stake in Volkswagen

  • Financial assets classification
  • Accounting for equity instruments with changes in fair value in OCI
  • Accounting for a sale of a put
  • Hedge accounting – the theoretical framework
  • Hedge rebalancing
  • Hedge accounting challenges for a purchased put
  • What Porsche did in reality

Workshop: Fictional Acquisition of KPN by Telefonica

  • Accounting for equity instruments with changes in fair value in PoL
  • Accounting for a purchase of a call
  • Accounting for a collar
  • Embedded derivatives and convertible bonds

Case 2: Accounting for the issuance of a convertible bond

  • Embedded derivatives and
  • Mechanics of convertible bonds
  • Initial recognition
  • Accounting entries  
 

Day Two

Accounting for Foreign Exchange Derivatives

  • Types of FX exposures
  • Functional currency
  • The ST Microelectronics functional currency
  • Chronology of a FX transaction

Case 3: Philips - Hedging a highly expected foreign sale

  • Identification of the FX exposure
  • Applying hedge accounting - hedging with an FX forward
  • Applying hedge accounting - hedging with an option
  • Applying hedge accounting - hedging with a tunnel
  • Applying hedge accounting - hedging with a knock-in forward

Workshop: Mediaset - Hedging a highly expected foreign purchase

  • Identification of the FX exposure
  • Applying hedge accounting - hedging with an FX forward
  • Applying hedge accounting - hedging with an option
  • Applying hedge accounting - hedging with a tunnel

Case 4: Net investment hedge – France Telecom and Everything Everywehere

  • Translation of foreign operations
  • Identification of the FX exposure
  • Applying hedge accounting - hedging with an FX forward
  • Applying hedge accounting - hedging with a foreign debt  
 

Day Three

Accounting for Interest Rate Derivatives

Case 5: Deutsche Telekom - Hedging a floating rate liability

  • Financial liabilities classification and the fair value option
  • Accounting for fixed rate bonds – the effective interest rate
  • Applying cash flow hedge for a fixed to floating interest rate swap
  • Hedge accounting documentation and hedge effectiveness assessments
  • Accounting entries

Case 6: Adidas - Hedging a fixed rate liability

  • Accounting for floating rate bonds
  • Applying fair value hedge for a floating to fixed interest rate swap
  • Hedge accounting documentation and hedge effectiveness assessments
  • Accounting entries

Other topics on interest rate risk

  • Hedging credit risk with CDSs
  • Hedging inflation risk
  • Interest rate risk macro hedging
  • Embedded derivatives

Case 7: Hedging a Future Fixed-Rate Issuance with a Swap

  • Identification of the interest rate exposure and solution
  • Hedge documentation 
  • Accounting entries

Case 8: Macro-hedging (under IAS 39)

  • Explanation of the objectives
  • Steps to its application and its weaknesses

Case 9: Hedging credit risk with CDSs

  • Explanation of the mechanics
  • The challenges

Case 10: Hedging inflation risk

  • Hedging an inflation-linked bond into fixed
  • Hedging an inflation-linked bond into floating
  • Swapping from Euribor into inflation
  • Hedging the inflation component of a floating rate bond