Accounting for Derivatives in Practice

Course Outline

A practical 3-day programme providing a conceptual framework based on an intensive use of real world cases and an analysis of the upcoming changes in IFRS 9.

Each case is covered step by step, encouraging interactive participation. The cases will cover the decision-making, documentation requirements, hedge effectiveness testing and accounting of a derivatives strategy during its whole life.

All participants receive a copy of the "Accounting for Derivatives" book by Juan Ramirez.

Who The Course is For

Financial managers
Treasurers
Derivatives accountants
Derivatives structurers and salespeople
Stock analysts
Derivatives middle-office

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Prior Knowledge

Basic understanding of financial statements
Derivatives instruments: forwards, calls, puts and interest rate swaps (basic level)

This program is eligible for 24 Continuing Education credit hours from the CFA Institute. If you are a CFA Institute member, CE credit for your participation in this program will be automatically recorded in your CE Diary.

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Day One

Conceptual Framework and Accounting for Equity Derivatives

Introduction to IAS 39
Interaction with IAS 32 and IAS 21
Upcoming developments

Case 1: Porsche: Acquisition of a stake in Volkswagen

Accounting for equity stakes - acquisition of an initial stake in Volkswagen
Accounting for undesignated derivatives - sale of a put on Volkswagen
Applying hedge accounting - hedging with a put
Effects of derivatives in the P&L statement
How Porsche did it in reality

Workshop: Fictional Acquisition of KPN by Telefonica

Accounting for equity stakes - acquisition of an initial stake in KPN
Accounting for undesignated derivatives - purchase of a call on KPN
Hedge accounting - purchase of a put on KPN
Hedge accounting - entering into a zero cost collar on KPN

Day Two

Accounting for Foreign Exchange Derivatives

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

Case 2: 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

Day Three

Accounting for Interest Rate Derivatives

Case 3: Deutsche Telekom - Hedging a floating rate liability

Financial liabilities recognition (review)
Hedging interest rate risk: Floating vs fixed rate liabilities
Bond terms overview
Identification of the interest rate exposure
Hedging with a swap
Hedging relationship documentation
Effectiveness tests and accounting at inception
Effectiveness tests and accounting during the life of the bond
Effectiveness tests and accounting at bond maturity

New financial instruments standard - Upcoming changes

Upcoming developments