HEDGE ACCOUNTING FOR IFRS 9 and ASC 815
The PYRAMID Hedge Module provides comprehensive Hedge Accounting support for Fair Value and Cash Flow methodologies in accordance with IFRS 9 and ASC 815. The Hedge Accounting module is designed to provide users with maximum flexibility when defining testing policies, running analytical testing, generating reports and feeding accounting systems.
INTEGRATION WITH EXTERNAL SYSTEMS
A key competitive advantage of the Ferential Hedge Accounting solution is the ability to upload external data into the analytical environment. PYRAMID accommodates straightforward data uploads of Hedge or Hedge Item details from other derivative or securities processing systems. This capability enables the user to automate the loading of large portfolios of complex security or derivative positions on a scheduled batch basis.
CREATE AND MANAGE COMPLEX HEDGE ACCOUNTING POLICIES
The Hedge Module Policy template allows for the creation and management of complex testing policies. From the Policy template, the user defines all items necessary to Assessment and Measurement analysis and reporting for a given Cash Flow or Fair Value policy assignment:
— Fair Value or Cash Flow Testing
— Type of Tests (Initial Prospective, Forward Prospective, Retrospective)
— Test Methodology (Dollar Offset, Back-Dated Regression, Cross-Sectional Regression)
— Risk Attribution: Accrued, Time Decay, Credit Spread, Volatility, FX Spot
— Periodicity of Assessment and Measurement testing (monthly, quarterly, etc.)
— Periodic or Cumulative Assessment and Measurement
— Number of periods to apply to Back-Dated or Cross-Sectional Regressions
— Type of simulated values to create for Back-Dated Regression
— Management of simulated vs. actual values in Regression Array
— Which statistics to include in Regression Analytics (R2, Slope, T-stat, F-stat, etc.)
MANAGEMENT OF HEDGE TRANSACTION RELATIONSHIPS
The highly flexible Hedge Transaction Browser is used to manage the linkage of Hedge and Hedge Items (or Hypothetical Derivatives) to form a Hedge Relationship and to assign Hedge Relationships to the appropriate Policy template. With the Hedge Transaction Browser, the user may link any number or type of Assets or Liabilities to Derivatives (one-to-one, one-to-many, many-to-many links), set Inception and Designation Dates, and filter and view all previously created Hedge Relationships. Hedge Relationships may be assigned to multiple Policy templates for ad-hoc and ‘what-if” testing in addition to the official Reporting Policy tests.
HEDGE TESTING AND WORKFLOW PROCESSING
When “running” testing analytics for a particular testing period, the user may select a single Hedge Relationship to process, or on a batch basis, multiple (or all) Hedge Relationships under a specific Policy (e.g., all FX FV), or all Policies and associated Hedge Relationships. The Hedge Module provide a Test Results Browser that gives the user the ability review Assessment and Measurement results by many criteria, including by Assessment Date, Type of Assessment Test, Policy Type, Hedge Relationship, etc. From the Test Results Brower, the user manages all review and approval activity related to processing Hedge Relationships through the Hedge Module. The system notifies the user of any test fails (both with text messages as well as color coding of results). The Thresholds Monitor warns of substantive changes to regression results (as defined by the user) that do not yet cause a test fail but may indicate a weakening of the Hedge Relationship.
ACCOUNTING LEDGER INTERFACE
The Ledger Interface creates accounting entries according to user-defined definitions on how to allocate specific Hedge or Hedge Item adjustments to the appropriate income statement and balance sheet adjustment accounts. The Ledger Account Interface is designed so that the unique account categories and instructions of each client can be quickly defined and implemented.