A Strong Hedge Accounting Program Can Reduce or Eliminate Earnings Volatility Corporations that take advantage of derivatives for managing interest rate, currency, or commodity risk should also consider the impact of accounting for those financial instruments. Most companies seek to reflect both the economic impact from derivatives and the related hedged exposures in the financial statements during the same period—which is often no easy task. The underlying accounting guidance for derivatives and hedge accounting in US GAAP and IFRS is nuanced and very challenging to apply properly. Many companies have misapplied the guidance, resulting in unexpected financial statement corrections. Successfully navigating the complexities of ASC 815 or IAS 39/IFRS 9 is critical for companies seeking to avoid earnings surprises and scrutiny from investors, auditors, and regulators. Benefits of Chatham’s Hedge Accounting Solutions Chatham’s comprehensive hedge accounting solutions are customized for…

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Chatham Financial Comments on FASB’s Proposal on Financial Instruments and Hedge Accounting September 29, 2010 We recently provided our views to the FASB on its controversial proposal to modify the accounting for financial instruments, including revisions to the accounting for derivatives and hedging activities. With respect to financial instruments in general, we continue to believe that both fair value and amortized cost have merit, and we share the concerns of most constituents that the FASB proposal goes too far with fair value as the primary measurement attribute for nearly all financial instruments. As for derivatives and hedging, we agree with certain provisions of the proposal, including reducing the standard for hedge qualification from “highly effective” to “reasonably effective.” However, we have serious concerns about the FASB’s proposed prohibition against removing the designation of an effective hedge (no more de-designations) and…

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