Accounting for Derivatives: An Overview Webinar

To provide CPAs and other financial professionals with an overview of the products and the transactions involved in derivatives accounting under US GAAP. You’ll gain the knowledge to avoid pitfalls and understand the effects on financial statements and risk management strategies. You’ll learn to identify the characteristics of cash flow, fair value and net investment exposures and determine the appropriate accounting and reporting treatment for these potentially complex transactions.

• Identifying the basic characteristics, risk management strategies and accounting requirements for derivatives
  – Interest rate, foreign exchange and commodities
  – Futures and forwards
  – Interest rate and other types of swaps
  – Caps, collars and floors
• Developing a conceptual accounting and reporting framework for financial instruments under ASC 815 (FAS 133)
• Expected changes to ASC 815
• Understanding embedded derivatives and bifurcation
• Examining the qualifying criteria and accounting requirements for:
  – Fair value hedges
  – Cash flow hedges
  – Net investment hedges
• Reviewing the guidelines for use of the short cut method and critical terms matching
• Simplified hedge accounting
• Effectiveness testing approaches
• Documentation and disclosure requirements
• Case studies for applying concepts

To provide CPAs and other financial professionals with an overview of the products and the transactions involved in derivatives accounting under US GAAP. You’ll gain the knowledge to avoid pitfalls and understand the effects on financial statements and risk management strategies. You’ll learn to identify the characteristics of cash flow, fair value and net investment exposures and determine the appropriate accounting and reporting treatment for these potentially complex transactions.

DETAILED LEARNING OBJECTIVES

• Identify ASC 815 as the primary US GAAP guidance governing derivatives and hedging

• Recognize the defining characteristics of a derivative under ASC 815

• Identify common underlyings used in derivative contracts

• Explain the function of a notional amount in determining derivative cash flows

• Identify contracts and transactions excluded from the scope of ASC 815

• Explain the purpose of the normal purchases and normal sales scope exception

• Recognize the principal risks associated with derivative instruments

• Distinguish derivative instruments from traditional financial instruments

• Explain how clearinghouses reduce counterparty credit risk in exchange-traded derivatives

• Identify the balance-sheet measurement requirement for derivative instruments

• Describe the principal characteristics of a forward contract

• Describe the principal characteristics of a futures contract

• Explain the rights and obligations of the parties to an option contract

• Define a swap and explain its basic economic purpose

• Identify the risk reduced through the use of a clearinghouse

• Describe the payment structure of a plain vanilla interest rate swap

• Distinguish forward contracts from futures contracts

• Identify an example of an option contract

• Identify the underlying variable in an option contract

• Explain how businesses use derivatives to manage financial risks

• Explain how the fixed leg of an interest rate swap is valued

• Identify SOFR as a commonly used benchmark in US-dollar floating-rate derivatives

• Explain how the notional amount is used in an interest rate swap

• Identify the appropriate yield curve for discounting expected swap cash flows

• Describe the typical fair value of an at-market swap at inception

• Explain how changes in a swap’s fair value are recognized after inception

• Define an embedded derivative

• Identify a common financial instrument containing an embedded derivative

• Determine when an embedded derivative must be bifurcated from its host contract

• Explain the accounting treatment of an embedded feature that is clearly and closely related to its host contract

• Identify the designation and documentation requirements for hedge accounting

• Identify the purpose of a fair value hedge

• Identify the purpose of a cash flow hedge

• Determine where qualifying cash flow hedge amounts are initially reported

• Explain the recognition of changes in the derivative and hedged item in a fair value hedge

• Determine when a qualitative critical-terms-match assessment may be used

• Identify the characteristics of a critical-terms-match hedging relationship

• Explain why the designated notional amount should align with the quantity of the hedged exposure

• Explain why hedge effectiveness cannot be assumed when critical terms are mismatched

• Describe the accounting for a qualifying cash flow hedge under US GAAP

• Identify the probability requirement for a forecasted transaction designated in a cash flow hedge

• Determine where qualifying cash flow hedge amounts are initially recognized

• Explain the accounting required when a cash flow hedge no longer qualifies for hedge accounting

• Identify a permissible hedged item in a fair value hedge

• Determine where changes in the hedging instrument and hedged item are recognized in a fair value hedge

• Identify the hedge used for foreign currency exposure associated with a net investment in a foreign operation

• Determine when the shortcut method may be applied to an interest-rate-swap hedging relationship

• Identify required disclosures concerning an entity’s use of derivative instruments

• Explain the treatment of accumulated other comprehensive income when a discontinued forecasted transaction remains probable

• Identify the similar-risk-exposure improvement introduced by ASU 2025-09

• Identifying the basic characteristics, risk management strategies and accounting requirements for derivatives
  – Interest rate, foreign exchange and commodities
  – Futures and forwards
  – Interest rate and other types of swaps
  – Caps, collars and floors
• Developing a conceptual accounting and reporting framework for financial instruments under ASC 815 (FAS 133)
• Expected changes to ASC 815
• Understanding embedded derivatives and bifurcation
• Examining the qualifying criteria and accounting requirements for:
  – Fair value hedges
  – Cash flow hedges
  – Net investment hedges
• Reviewing the guidelines for use of the short cut method and critical terms matching
• Simplified hedge accounting
• Effectiveness testing approaches
• Documentation and disclosure requirements
• Case studies for applying concepts