To qualify for hedge accounting, companies are required to prove the effectiveness of their hedges by conducting prospective and retrospective tests. Due to the complexity of the problem, many corporations accept the high costs of specialist consulting services to perform these computations. Too often tradeoffs are made between the costs of the services and the frequency of reporting, resulting in management not having the ongoing visibility they need to manage risks appropriately.
With regulations working to reduce the complexity of testing requirements, companies are no longer dependent on outsourced services to handle their hedge effectiveness testing. Hedge Accounting Insight gives you an efficient, easy to use and affordable system for conducting hedge effectiveness testing in-house.
Save time, money and increase your visibility by automating your hedge effectiveness testing so your results can be distributed to all relevant stakeholders at a frequency of your choosing - enter your information once and let Hedge Accounting Insight handle the rest.
Hedge Effectiveness Testing Methods
Supports both retrospective and prospective tests
Dollar Offset Method
The dollar offset method refers to the ratio of the change in value of the hedged item, compared to the change in value of the derivative being used to hedge. Both dollar offset periodic and dollar offset cumulative methods are supported by Hedge Accounting Insight.
Widely accepted as the preferred method, regression analysis is used by most companies as it is more accurate in determining effectiveness. Regression also simplifies the process as it can often satisfy requirements for both prospective and retrospective tests. The system not only calculates the regression results, it also provides all the data used for the two sets of variables.
Credit Value Adjustment (CVA)
Determining the impact of counterparty credit exposure on your portfolio is fast becoming a key factor in the accurate reporting of earnings. As regulations and auditors are pushing to have CVA included in valuations, understanding your portfolio’s value given your overall exposure is becoming essential. With Hedge Accounting Insight you can select whether or not to include the credit valuation adjustment in your hedge testing calculations, giving you the flexibility to indicate on which part of the calculation it should be applied.
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