Derivative Solutions

Best Practice Risk Management and Fair Value Accounting for your Derivatives Portfolio

If you are using a hedging strategy to minimize your risks, but not utilizing hedge accounting, then changes in the fair value of your derivatives need to be accurately calculated and reported in your income statement.

Increasing demand from investors and senior executives for transparency as well as trends in fair value regulations is resulting in more thorough financial disclosures of your economic hedges.

Many of the processes and tools used in the past to report on your derivatives are no longer appropriate or need to be augmented to address issues such as:

CVA table
  • Independence - Valuations have to be independent from your counterparty. At a minimum you need an independent second source of valuation, calculation and market data.
  • Credit Risk - Valuations need to include a credit adjustment (CVA). A credit calculation must be performed even if it is just to prove that credit risk is immaterial.
  • SOX Controls - Comprehensive spreadsheet controls are needed to comply with SOX and regulations. The risks associated with undocumented uncontrolled spreadsheets is no longer acceptable.
  • Market Volatility - The effect of FX, Interest Rate or Commodity price fluctuations on P&L have to be disclosed to stakeholders so that the market risk is quantified and understood. Similar to credit adjustment, even if market risk is deemed immaterial, a simulation must be performed to prove market fluctuations are immaterial to the assets, revenue and P&L of the financial statements.

Fair Value Insight enables you to take full advantage of the benefits associated with your derivatives hedging strategy by making it easy and affordable to adopt best practice risk management and comply with the fair value accounting standards Topic 820 (FAS 157) and IFRS 7.

Improve your Fair Value accounting practices and save time and money over your existing processes - Request your trial today

Download Fair Value Insight brochure (993KB PDF)

Now that we use Fair Value Insight, we don't have to wait on a third party. Fair Value Insight gives me greater confidence in the counterparty credit risk and CVA calculations that I need at a fraction of the cost of what I was paying an outside consultant.

Courtney Parker Senior Analyst,
Baycare Health System