The volume, variety, and inherent complexity of derivative contracts have increased over time, in tandem with the rapid evolution of hedging activities. Even before the global financial crisis of 2008, hedge accounting was a complex endeavor, with a significant number of restatements caused by misapplication of accounting guidance.
After the crisis, regulatory pressures for additional transparency and stability in this market — the Dodd-Frank Act, Basel III and other reforms, many of which are still being debated by governing bodies — have only added to the complexity of accounting for these financial instruments.
Not only will corporations have to comply with new over-the-counter (OTC) derivative trading regulations and reporting requirements, they will also likely pay more for these transactions, as banks pass along the increased cost of their own compliance to customers.
These reforms, necessary as they may be, aren’t simply compliance issues, and they aren’t limited to large multinationals. They will impact every corporate that holds a derivative, in multiple ways.
While some rules aren’t final yet, it’s clear that companies must start planning now to avoid being caught off-guard by growing costs, demands on cash, and changes in risk management.
PwC’s team of accounting professionals can help you clarify this complex and fluid area of accounting by providing relevant guidance, analysis and perspective in your unique commercial context. We can help you:
Boards (or appropriate committees thereof) should perform a certain level of due diligence when deciding whether to allow the company to elect the end-user exception under Dodd-Frank. Contact us to learn more about how we can help educate your organization on the choices that will need to be made regarding this new guidance.