Hedge Accounting

Hedge accounting standards under US GAAP and IFRS are highly nuanced and properly applying them is equally complex. Since accounting standards are subject to significant interpretation and judgment, complying with the requirements takes expertise. To help realize the optimum impact on earnings, companies need deep experience and strong technical competence. Chatham delivers both.

That is why confidence in the hedge accounting team behind your program is paramount. Since 2000, Chatham has assisted companies with navigating the complexities of ASC 815 and IAS 39/IFRS 9. We help properly align the accounting and economics of tens of thousands of transactions to achieve desired results. We customize hedge accounting solutions for each client and reduce complexity and administrative burdens through technical consulting, analysis, technology, education and key hedge accounting deliverables.

Strong team of in-house practitioners: Chatham leads the industry in hedge accounting practices. Our reputation is based on setting the standard and attracting the very best accounting practitioners. Members of our team come from the Big Four, including national practice groups, and several worked at the FASB prior to joining Chatham, including work on the hedge accounting standards.

Our hedge accounting expertise has earned the respect of regulators, global standard setters, major accounting firms and industry experts. Chatham clients can feel confident that their hedge accounting is being properly applied to each and every transaction.

World-class practice: Given the complexity of applying hedge accounting rules, many companies can run into challenges. For example, creating hedge designations that are either too specific or too vague can result in a hedging relationship being treated differently than intended by the Company.

Chatham has worked with hundreds of companies and their audit teams, advising on tens of thousands of hedging transactions. Such deep expertise and practical market insight help ensure that hedging relationships are structured in a manner to provide both desired flexibility and necessary specificity to produce expected results.

Regardless of whether a company is hedging interest rate, foreign currency, or commodity exposures, Chatham possesses the know-how to structure optimal hedge designations. Sometimes companies simply fail to satisfy the documentation requirements or they structure their hedging relationships in sub-optimal ways, both resulting in re-designating their hedges in new hedging relationships.

Adding to such complexity, these designated hedging relationships are typically “off-market”, or at a fair value other than zero, resulting in the recognition of hedge ineffectiveness.

Our structuring transaction experience is built-into the hedge accounting technology within our proprietary ChathamDirect platform. This enables us to consistently deliver the highest quality advice to all of our clients, whether they rely on Chatham to provide services or use ChathamDirect on their own.

Best-in-class CVA/DVA calculations: Global valuation accounting standards require companies to incorporate credit risk into the fair value measurement of derivatives. Companies must consider not only the counterparty’s credit risk, but also their own credit risk. Since these accounting standards are very specific, measurements must be performed in the same way as a market participant would—something out of reach for most companies.

Fortunately, Chatham makes this approach available to companies for a reasonable price. Although the accounting standards do not require specific approaches to use when measuring fair value, we use the best-in-class method, as deemed by auditors, regulators, and standard setters, called the Total Expected Exposure method. This method is completely automated and accessible to any client. Furthermore, our team of quantitative experts is available to answer any questions about our valuations.

Our competitors use more simplified calculation methods that tend to leave auditors pushing their clients to move towards more sophisticated methods. With Chatham, the preferred approach is used from the start.