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Hedge Accounting

Often we find hedging with a swap makes sense from a cashflow perspective.  But the reality is that banks often must make swaps work from an accounting perspective.
 
The basic requirement of ASC815 is that swaps must be marked to market, with changes in the fair value of a swap flowing through income, unless the swap is qualified for hedge accounting.

Hedge Accounting exceptions fall into two broad categories, "Fair Value" hedges and "Cash Flow" hedges.

PRM can evaluate and model the potential accounting treatment and reporting for various swap strategies, then assist in the preparation of appropriate hedge accounting reports.

Fincad's Hedge Accounting Insight platform allows us to produce a comprehensive suite of valuation reports and hedge effectiveness tests for a broad array of hedges. 

Hot Off The Press!!!
FASB Board meetings in June of 2015 vote to approve changes to accounting for financial instruments that will likely lead to significant easing in the requirements for measuring on-going hedge effectiveness and reporting hedge ineffectiveness.  FASB will now move to publish an exposure draft before approving final rules.  Good news for banks!