The emergence of IAS 39 in Europe, and Federal Accounting Standard (FAS) 133 in the US, has significantly changed the accounting principles for the recognition and measurement of financial instruments, especially derivatives. Both standards require financial institutions and corporations to clearly demonstrate the effectiveness of hedging strategies.
BP Finance runs the treasury cash management requirements for the whole BP Group and its subsidiaries in over 100 countries around the world. As part of its hedging strategy, BP Finance uses derivatives to manage the FX exposure for non-functional currency forecast revenue and capital expenditure transactions, via the centralized treasury. These transactions must now be in line with the requirements of IAS 39 and FAS 133. The Wall Street SystemÂ® Hedge Compliance Module makes this easy to achieve.
Wall Street Systems launched its enhanced Hedge Compliance Module in December 2003. Using the module, customers such as BP Finance can report and account for hedge gains and loses on a fair market value basis. The systemâs hedge tracking and linking functionality connects exposures and hedging transactions and automatically creates the accounting entries. All valuations and changes in values are written to a time series database. Full audit query capabilities are embedded in the database, and users have access to summary information by date and can easily view hedge histories.
David Bright, manager, Banking Projects & Systems, BP Finance, said: "We embarked upon discussions with Wall Street Systems in April 2004. Wall Street Systems reviewed and assessed our companyâs requirements in line with the new accounting standards. By August, Wall Street Systemsâ Hedge Compliance Module had been installed. It then only took three months to configure and test the software according to our business requirements. Due to the flexible nature of the system, the implementation required minimal bespoke enhancements ensuring that we were compliant with IAS 39 in advance of the January 1 deadline."
Mike Thrower, director of marketing at Wall Street Systems, said: "BP has been a valued client of Wall Street Systems since 1993. Over the years our relationship has grown and strengthened. By adding the Hedge Compliance Module, BP is building on the front-to-back office integration that The Wall Street System delivers. We look forward to developing this relationship further as we tackle the ever increasing and changing issues affecting corporate treasurers."