Accounting for Derivatives & Other Financial Instruments

Why this course is timely The recent credit crisis has raised questions amongst regulators and investors on the role the accounting standards played in helping banks and other financial institutions to conceal losses. The House of Lords, examining the role of auditors in the banking crises accused them of a 'dereliction of duty' Peter Wyman, a former partner in a big four firm and past president of the Institute of Chartered Accountants, described the International Financial Reporting Standards (IFRS) as 'not fit for purpose'. New regulation is likely to force auditors to have regular meetings with banking regulators to review the risks that banks face. Accountants will be forced to sharpen their skills in the complicated area of financial instruments, hedging and how they are accounted for. As a result of the House of Lords report, a huge overhaul will continue to take place both in Europe and America and this will affect the way that many financial instruments are accounted for under the International IFRS rules. New standards In particular IFRS 9 were developed in an attempt to sort out the confusion between Mark to market accounting and accrual accounting. In addition, controversial new rules for financial instrument impairment were developed, known as the 'partial catch-up rules'. These rules will require huge system changes that accountants need to prepare for. The rules of hedge accounting are also set for redesign, particularly because of the practical difficulties that IAS 39 has thrown up. Again, the new rules will have a significant impact on data that accountants must collect to comply with the accounting standards. Another area of change is the move from Basel 2 to Basel 3. These changes will affect accountants as they try to cover the complicated area of asset impairment. Perhaps the biggest challenge facing accountants however is the uncertainty caused by the difference between Company Law and the accounting standards. Both systems have different methods to calculate realised profits - there is the risk that if accountants do not adjust their IFRS profits to comply with company law, they may face legal sanctions. These differences will be explored and practical solutions suggested during the course. Already, though 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. How will this course assist you? Our interactive 3-day course course is designed to deal with your specific questions on accounting for derivatives and other financial instruments: We will equip you with the practical tools to analyse and understand various transactions. Our courses are very interactive where delegates can share their experiences with other delegates. At the end of the course you will have a firm understanding of the most popular financial instruments and how they impact on your risk strategies. Our experience is that most delegates want a thorough understanding rather than a precursory overview of the standard. We rely on practical examples and case studies to ensure that, by the end of the course, you are fully competent to understand and implement hedging strategies. Who should attend? Risk Managers Accountants Auditors Senior Operations Managers Derivative Sales executives
Day 1 Company Law v International Financial Reporting Standards Realised v Unrealised Profits Incurred v Expected Losses Controversy surrounding capital maintenance Prudence Principle Case Study : Barclays Bank and the Protium Deal Financial Instruments and their Impact on the Accounting Standards Overview Profit and Loss Account Overview Balance Sheet Cash Flow Statement Disclosures Notes to the Accounts Case Study: Impairment of Loans from an IFRS and Company Law Perspective Basel 3 & IFRS Impairment Rules Pro cyclicality Shareholders' Funds and its impact on Tier One and Tier Two capital Impact of Hedging Accounting Hedging v Basel 3 Hedging New Impairment Rules Partial Catch Up Method Straight Line v Annuity Calculations Incurred v Expected Losses Problems with Prudence 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 Case Study: Measuring Risk in a Treasury Environment International Financial Reporting Standard 9 Fair value v Accruals Accounting New Impairment Rules Impact on hedge accounting. Changes to Available for Sale category Case Study: Americredit and Credit Losses Impact of IFRS 9 on Banking strategies Business Model Test Cash Flow Characteristics Other Comprehensive Income Option Fair Value Option 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 Day 2 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 Day 3 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 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 Course summary and close