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Accounting for Financial Instruments

This interactive three-day programme will teach delegates valuation and accounting representation of complex financial instruments in light of upcoming changes and their impact on the risk strategies.

The course features:

Latest changes under IFRS 9:

• New impairment rules
• Case studies surrounding off balance sheet accounting
• Accounting principles for financial instruments
• Measure and manage credit risk in financial instruments
• Hedge testing and measuring hedge effectiveness
• Efficient valuation of complex financial instruments
• Impact of the latest legislation on the reporting of financial instruments

Who Should Attend

• Derivative Sales executives
• Risk Managers
• Accountants
• Auditors
• Senior Operations Managers

• Directors and managers of corporate accounting
• IFRS implementation managers
• Financial Analysts
• Regulatory compliance officers


Course Overview

By far the most complex and controversial accounting standards ever to be issued are IAS 39 IFRS 9 and FASB 133. It is important that derivative practitioners become fully conversant with the new post credit crunch requirements, implementation and more importantly, potential weaknesses of the standards. This course is designed to give practitioners a good grounding on the fundamental of financial instruments, 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. In November 2009 in addition to IFRS 9, new rules were also introduced on Impairment accounting and 'off balance sheet' treatment. These latest developments will be covered on the seminar. 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.


This course is designed to deal with your specific questions about FASB 133 and IAS 39. The course will equip you with the practical tools to analyse and understand various transactions. The course is very interactive where delegates can share their experiences with other delegates. 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.

Course Overview

Background and Structure of Company Accounts
• Overview Profit and Loss Account
• Overview Balance Sheet
• Cash Flow Statement
• Disclosures
• Notes to the Accounts
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 Freddie Mac
Case Study Northern Rock
Why are Financial Instruments necessary
• Cross Currency Swaps
• Interest Rate Swaps
• Swaptions
• Options
• Bond Futures
• Index Swaps
Case Study Americredit
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
Case Study Problems at Barings Bank and Allied Irish Bank
International Financial Reporting Standard 9
• Changes to Available for Sale category
• Fair value v Accruals Accounting
• New Impairment
• Impact on hedge accounting

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
Case Study – Anglo Irish Bank
Accounting Changeover 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
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
Case Study Off Balance Sheet Barclay’s Bank
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
• Testing for effectiveness -- 80% / 125% rule
FASB and Securitization
• Benefits off securitization
• Determining the difficulty from hedging with plain vanilla swaps
• Understanding the use of tailor made amortizing swaps
• Constructing amortization swaps from plain vanilla swaps
• Present value basis point calculations
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