Accounting for derivatives and hedging

The volume, variety and inherent complexity of derivative contracts have increased over time, in tandem with the rapid evolution of financing alternatives. The related accounting and financial reporting issues are equally complex.

Where financial reform hits hardest

The global financial crisis ushered in an era of regulatory pressures for additional transparency and stability in derivatives that are valued based on the performance of one or more underlying assets. The Dodd-Frank Act, Basel III and other reforms, many of which are still being debated by governing bodies, have added to the complexity and cost of issuing and accounting for these financial instruments.

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What impacts should companies consider?

  • Financial institutions are likely to pass along increased costs to corporate hedgers, and companies may be asked to post more collateral. The increased cost of OTC derivatives could lead companies to consider alternatives for managing risk.
  • Processes need to be updated to accommodate new types of derivative transactions. Additionally, IT departments need to accommodate complex recordkeeping requirements. Finance managers must ensure that margin and collateral are posted daily.

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How PwC can help

PwC’s team of derivatives accounting professionals can help you clarify this complex and fluid area of accounting by providing guidance, analysis and perspective for your unique circumstances. We can help you:

  • identify what’s regulated in your portfolio
  • evaluate your classification
  • weigh the costs and benefits of changing strategies
  • understand the collateral demands
  • analyze the administrative and operational requirements
  • assess impact on your financial reporting

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Contact us

Henri Leveque
Capital Markets Accounting Advisory Leader
Tel: +1 (678) 419 3100

Paul Sheward
Partner, Deals, U.S. Accounting Advisory Services Leader, PwC US
Tel: +1 (312) 298 2232

Chris Rhodes
Partner, Transaction services, PwC US
Tel: +1 (646) 471 5860

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