By Graeme Tosen
Graeme Tosen, the chief for technical accounting at HBOS Treasury providers in London, has written a step by step consultant to realizing and imposing the hugely technical accounting principles of the overseas monetary Reporting criteria (IFRS) that practice to derivatives and established finance.
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Extra info for A Practical Guide to IFRS for Derivatives and Structured Finance
FAQ references • Is there a choice to separate the derivative and treat it as trading if you wanted to? (See p. 31) • How are synthetic positions treated where the derivative is legally a separate contract? (See p. 31) • Do you only assess for separation at the initial recognition date or throughout? (See p. 2 is based on information and examples from the application guidance to IAS 39 (issued by the IASB). 2 Separation rules Derivative Host Closely related/ Not closely related An embedded put option that requires the issuer of the hybrid instrument to reacquire the instrument for an amount based on the movement in an equity or commodity price (or a related index of commodity or equity prices – like the FTSE 100, for example).
P. 39) Using a combination of different derivatives to hedge with. – What hedging instruments can and cannot be used? (p. 39) Any circumstances in which an entity does not expect its hedge to be 100 per cent effective. – The hedge effectiveness issue (p. 45). – The hedging criteria (p. 41). Ceasing hedging at any stage before the derivative/hedging instrument has matured . – Accounting for fair value hedges (p. 42). – Accounting for cash flow hedges (p. 44). Hedging a forecast cash flow that does not occur.
No. Only derivatives that fall within the accounting definition of a derivative (see the ‘Definitions’ section later in the book) are treated under the derivative rules. It is therefore possible to legally contract for a total return swap where you swap two flows that are unrelated and the value of which is not affected by the change in any underlying. This would however not constitute a derivative. Are any derivatives not accounted for at fair value? Certain derivatives, although legally classified as derivatives, are not accounted for as derivatives based on the principle of substance over legal form.