Hedge Accounting for Banks under IFRS – EY Academy of Business

Hedge Accounting for Banks under IFRS

Hedge accounting is a useful accounting tool that enables the presentation of derivatives concluded for the purpose of risk management at fair value without affecting the financial result of the entity. For banks, hedge accounting can be exceptionally useful, because it allows for stabilisation of results, in particular a bank’s net interest margin.

The introduction of IFRS 9 after 2018 introduced a dichotomy in requirements relating to hedge accounting. Currently entities can choose between applying hedge accounting in accordance with the new IFRS 9 and the previously effective IAS 39.

Our two-day intensive and interactive workshop is dedicated to aspects of the application of hedge accounting in banking in accordance with both the new requirements introduced by IFRS 9 Financial Instruments and the ones set out by IAS 39, and highlighting the pros and cons of adhering to any of the two.

Under both standards, the use of hedge accounting is a privilege, available only on condition of meeting certain economic and other criteria. These criteria can be difficult barriers to overcome by many entities wishing to benefit from hedge accounting.

The goal of the workshop is to equip participants with up to date and practical knowledge and skills to enable them to achieve hedge accounting for economic hedging relationships typically encountered in commercial banks.

You might also be interested in the following courses: Introduction to Banking | Bank Accounting under IFRS

The workshop is intended both for managers and staff participating in the process of entering into, processing, accounting and reporting for financial derivatives in banks, in particular employees of the ALM, treasury and back office, accounting and financial reporting departments.

 

This workshop might also be of interest to investment bankers and those in charge of structuring derivatives for corporations.

 

Contact us if you are looking for a course tailored to your needs – we will be happy to advise on this.

Agenda

  • Typical cases of application of derivatives to managing market risks in the banking and the trading book. The strategic and accounting perspective of asset and liability management.
  • Examples of hedging strategies used by banks to manage the structural and other market risks using derivatives and their accounting implications. Definition of “accounting mismatch” resulting from different classifications of financial assets and financial liabilities in accordance with IFRS and the impact of “accounting mismatches” on the results of a bank.  Benefits of hedge accounting and alternative approaches to accounting mismatches.
  • Hedged items and hedging instruments eligible for hedge accounting in light of IAS 39 and IFRS 9. Risk components, which can and cannot be designated to hedge accounting.
  • Hedge accounting formal requirements: initial documentation, approach to measurement of effectiveness, including the “hypothetical derivative” approach for cash flow hedges. Differences between IFRS 9 and IAS 39 requirements relating to effectiveness testing, including the “rebalancing” mechanism.
  • Other differences between hedge accounting application under IAS 39 and IFRS 9, including hedging risk components, aggregated exposures and layer components, accounting for the “cost of hedging”, hedges of net positions.
  • Accounting approach to hedge accounting:
    • Accounting models applied for fair value hedges, cash flow hedges and hedge of FX risk attributable to net investment in a foreign operation
    • Accounting treatment of the ineffectiveness of a hedge
    • Disaggregation of a derivative: accounting for interest, swap points, basis spread and time value of hedging derivatives.
  • Requirements related to discontinuation of hedge accounting, including partial discontinuation. Accounting treatment for discontinued hedges and re-designated hedging relationships.
  • Hedge accounting in light of IAS 39 and IFRS 9 and main differences between the two standards. Pros and cons of adopting the IFRS 9 hedge accounting model from the perspective of banks.
  • Presentation of hedge accounting in the financial statements of a bank. Impact of hedge accounting on profit and loss and equity of a bank. Disclosure requirements as required by IFRS 7 (as amended by IFRS 9).

- Maciek is an experienced financial risk management consultant and trainer. He is a Senior Associate Trainer with EY Academy of Business and specialises in delivering courses in the areas of financial management, banking, valuations and accounting.

Participants of this two-day workshop will receive 14 CPD (Continuous Professional Development) credit hours.

Our courses fulfil the requirements of the professional development schemes of international professional bodies such as ACCA, IIA, PMI®, etc.

Hedge Accounting for Banks under IFRS

Hedge accounting is a useful accounting tool that enables the presentation of derivatives concluded for the purpose of risk management at fair value without affecting the financial result of the entity. For banks, hedge accounting can be exceptionally useful, because it allows for stabilisation of results, in particular a bank’s net interest margin.

The introduction of IFRS 9 after 2018 introduced a dichotomy in requirements relating to hedge accounting. Currently entities can choose between applying hedge accounting in accordance with the new IFRS 9 and the previously effective IAS 39.

Our two-day intensive and interactive workshop is dedicated to aspects of the application of hedge accounting in banking in accordance with both the new requirements introduced by IFRS 9 Financial Instruments and the ones set out by IAS 39, and highlighting the pros and cons of adhering to any of the two.

Under both standards, the use of hedge accounting is a privilege, available only on condition of meeting certain economic and other criteria. These criteria can be difficult barriers to overcome by many entities wishing to benefit from hedge accounting.

The goal of the workshop is to equip participants with up to date and practical knowledge and skills to enable them to achieve hedge accounting for economic hedging relationships typically encountered in commercial banks.

You might also be interested in the following courses: Introduction to Banking | Bank Accounting under IFRS

For whom?

The workshop is intended both for managers and staff participating in the process of entering into, processing, accounting and reporting for financial derivatives in banks, in particular employees of the ALM, treasury and back office, accounting and financial reporting departments.

 

This workshop might also be of interest to investment bankers and those in charge of structuring derivatives for corporations.

 

Contact us if you are looking for a course tailored to your needs – we will be happy to advise on this.

Programme

Agenda

  • Typical cases of application of derivatives to managing market risks in the banking and the trading book. The strategic and accounting perspective of asset and liability management.
  • Examples of hedging strategies used by banks to manage the structural and other market risks using derivatives and their accounting implications. Definition of “accounting mismatch” resulting from different classifications of financial assets and financial liabilities in accordance with IFRS and the impact of “accounting mismatches” on the results of a bank.  Benefits of hedge accounting and alternative approaches to accounting mismatches.
  • Hedged items and hedging instruments eligible for hedge accounting in light of IAS 39 and IFRS 9. Risk components, which can and cannot be designated to hedge accounting.
  • Hedge accounting formal requirements: initial documentation, approach to measurement of effectiveness, including the “hypothetical derivative” approach for cash flow hedges. Differences between IFRS 9 and IAS 39 requirements relating to effectiveness testing, including the “rebalancing” mechanism.
  • Other differences between hedge accounting application under IAS 39 and IFRS 9, including hedging risk components, aggregated exposures and layer components, accounting for the “cost of hedging”, hedges of net positions.
  • Accounting approach to hedge accounting:
    • Accounting models applied for fair value hedges, cash flow hedges and hedge of FX risk attributable to net investment in a foreign operation
    • Accounting treatment of the ineffectiveness of a hedge
    • Disaggregation of a derivative: accounting for interest, swap points, basis spread and time value of hedging derivatives.
  • Requirements related to discontinuation of hedge accounting, including partial discontinuation. Accounting treatment for discontinued hedges and re-designated hedging relationships.
  • Hedge accounting in light of IAS 39 and IFRS 9 and main differences between the two standards. Pros and cons of adopting the IFRS 9 hedge accounting model from the perspective of banks.
  • Presentation of hedge accounting in the financial statements of a bank. Impact of hedge accounting on profit and loss and equity of a bank. Disclosure requirements as required by IFRS 7 (as amended by IFRS 9).
CPD Points

Participants of this two-day workshop will receive 14 CPD (Continuous Professional Development) credit hours.

Our courses fulfil the requirements of the professional development schemes of international professional bodies such as ACCA, IIA, PMI®, etc.

Price

EUR 480 net

Location

Online

Date

6-7 October 2022

Contact

Aleksandra Jabłczyńska

Course coordinator

  • +48 505 171 636
  • aleksandra.jablczynska@pl.ey.com