Hedge Accounting
Hedge Accounting challenges
Hedge accounting places high demands on accounting and treasury: The former must precisely document hedging relationships and regularly evaluate financial instruments. The latter is responsible for carrying out hedging transactions, for example through derivatives.
Strategy
Hedge Accounting requires a risk management strategy in which relevant risks are identified and countermeasures are defined. The hedged risks must meet defined criteria.
Types
With fair value hedge, cash flow hedge and net investment hedge, there are three types available, which differ in how the performance of real and hedged transactions is recognized in the income statement.
Documentation
Hedge Accounting requires complete documentation from the overall risk management strategy to the individual hedging relationship and therefore places high demands on accounting and treasury.
Our support
We support your Hedge Accounting processes with specialist expertise and many years of experience.
Yield curves for your needs
Yield curves are highly relevant for companies seeking to make sound financial decisions.
Valuation of bonds
Yield curves are used to discount bonds' future cash flows in order to assess their market value. Adjusting the yield curve to reflect creditworthiness, rating-related factors, and country-specific risk components is essential for accurate valuation.
Discount rates in IFRS accounting
In IFRS accounting, items are frequently depicted by the present value of their future cash flows. The prerequisite for this is the proper calculation of an appropriate discount rate. Typical areas of application include fair value valuations, the valuation of provisions as well as accounting for pension obligations.
Calculation of borrowing costs
Based on current market data, we derive risk-appropriate interest rates — using methods such as the analysis of comparable corporate bonds, or model-based approaches like Merton's structural models.
Risk Management and Hedging
Yield curves are a core component of risk management, particularly in the context of derivatives and interest rate hedging. Banks, insurance companies, and corporates rely on them to develop and assess strategies for mitigating interest rate volatility.
This is how we support Hedge Accounting for you
Development of Risk Strategies
We develop a formal risk strategy that links your hedging goals with documentation requirements in accordance with IFRS 9, identifies relevant risk positions and defines measurable parameters for reducing them.
A standardized hedge framework ensures that every measure meets the effectiveness criteria and that unnecessary volatility in the profit and loss statement is avoided.
Risk Reduction
For different types of risks, there can be many different ways to reduce them. Together with you, we will find an efficient way to reduce your balance sheet risk.
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Risk Management Documentation
We prepare the documentation of the risk management strategy as the basis for the overall process, including templates, booking processes, evaluation of basic and hedging transactions and notes for each hedging relationship.
In this way, we create a reliable hedge accounting process.
FAQ
What is Hedge Accounting?
Without this targeted allocation, economically hedged risks would lead to artificial fluctuations in earnings in financial reporting.
What types of protection are differentiated under IFRS?
This differentiation ensures that the economic hedging strategy is always in line with the accounting presentation.
What are the documentation requirements under IFRS 9?
What is an underlying transaction and a hedging instrument?
Through the coordinated combination of both components, accounting volatility is minimized and the economic risk profile is precisely represented.
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