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Hedge accounting: Simplifying the accounting for hedging activities

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The recent Deloitte webcast, “Hedge accounting: Simplifying the accounting for hedging activities,” polled more than 3,000 business professionals about their organizations’ implementation plans for the new hedge accounting rules issued by the FASB. These slides highlight the findings from the poll.

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Hedge accounting: Simplifying the accounting for hedging activities

  1. 1. Deloitte Dbriefs: Hedge accounting: Simplifying the accounting for hedging activities October 9, 2018
  2. 2. Copyright © 2018 Deloitte Development LLC. All rights reserved. 2 On May 22, 2018, Deloitte conducted a special edition Dbriefs webcast titled, “Hedge accounting: Simplifying the accounting for hedging activities,” and polled more than 3,000 business professionals about their organizations’ implementation plans for the new hedge accounting rules issued by the Financial Accounting Standards Board (FASB), Accounting Standards Update 2017-12 Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12). Most respondents work in accounting (54.3 percent), finance (19.4 percent), tax (8.8 percent) and audit (3.7 percent). The following slides highlight the findings from the Dbriefs poll questions. Answer rates differed by question. Insights are provided by Jon Howard, Audit & Assurance senior consultation partner for hedge accounting, Deloitte & Touche LLP, and Bill Fellows, partner, Deloitte Risk and Financial Advisory, Deloitte & Touche LLP. Overview
  3. 3. Copyright © 2018 Deloitte Development LLC. All rights reserved. 3 Key Data Point: Nearly one-third of respondents indicated their organization hardly uses hedge accounting. Deloitte Insight: “Historically, companies have often been hesitant to utilize hedging strategies because of the complexities. The new standard removes many of these barriers, making it much easier for companies to achieve hedge accounting.” – Jon Howard, Audit & Assurance senior consultation partner for hedge accounting, Deloitte & Touche LLP Note: 25.2 percent responded Don't know / Not applicable to this question Votes received: 3192 Poll question: How would you describe your organization’s current use (or prior to adoption of ASU 2017-12) of hedge accounting? Data totals for certain questions may not equal 100 percent due to the rounding of raw data to the nearest tenth of a percentage. 11.3% 31.0% 32.6% Extensive users Moderate users Hardly use hedge accounting
  4. 4. Copyright © 2018 Deloitte Development LLC. All rights reserved. 4 Key Data Point: Only 20 percent of respondents indicated their organization has either already adopted or plans to adopt ASU 2017-12 prior to January 1, 2019. Deloitte Insight: “In considering whether to adopt the new hedge accounting standard and determining the adoption timeline, companies should keep in mind the potential risk management benefits. The standard can help companies minimize volatility within financial statements and enhance predictability in their earnings statements. This represents an opportunity that companies should consider taking full advantage of.” – Bill Fellows, partner, Deloitte Risk and Financial Advisory, Deloitte & Touche LLP Note: 47.3 percent responded Don't know / Not applicable to this question Votes received: 3,330 Poll question: When does your organization expect to have ASU 2017-12 implemented? 10.9% 9.7% 32.1% Already adopted - either by the end of Q1 2018 or in 2017 In Q2-Q4 of 2018 In 2019 (or by the effective date) Data totals for certain questions may not equal 100 percent due to the rounding of raw data to the nearest tenth of a percentage.
  5. 5. Copyright © 2018 Deloitte Development LLC. All rights reserved. 5 Key Data Point: Respondents did not indicate one primary expected benefit but instead were relatively split among three benefits. Deloitte Insight: “The relatively even split between the top-rated three expected benefits of the new standard illustrate why companies should be paying attention: greater choice with respect to hedge accounting alternatives, decreased costs of compliance, and better alignment with real world hedging strategies.” – Bill Fellows, partner, Deloitte Risk & Financial Advisory, Deloitte & Touche LLP Note: 34.8 percent reported Don't know / Not applicable and 11.5 percent responded Other to this question Votes received: 3,242 Poll question: What do you expect will be the biggest benefit to your organization in adopting the new standard? 17.4% 18.0% 18.4% Better alignment with current risk management Decreased operational burden Opportunities related to adoption of new hedge accounting strategies Data totals for certain questions may not equal 100 percent due to the rounding of raw data to the nearest tenth of a percentage.
  6. 6. Copyright © 2018 Deloitte Development LLC. All rights reserved. 6 Key Data Point: Respondents indicated several obstacles preventing implementation of the new hedge accounting standard. Obstacles included education about using hedging strategies, navigating gray areas of the new standard, and the ability to efficiently review existing hedging strategies. Deloitte Insight: “Clearly, more education and experience are needed. FASB has significantly simplified the process, but companies need to take the initiative. There are a number of external resources that companies can access to help jump-start the process. Make no mistake: this is a good update to a standard that has potential long-term benefits for a company.” – Jon Howard, Audit & Assurance senior consultation partner for hedge accounting, Deloitte & Touche LLP Note: 28.8 percent reported Don't know / Not applicable and 9.3 percent responded Other to this question Votes received: 3,012 Poll question: What do you expect will be the biggest obstacle to implementation? 21.0% 20.2% 20.7% Developing an efficient process for reviewing existing hedging instruments, strategies and contracts across the organization and evaluating them against the new standard Navigating the gray areas of the standard, such as how to hedge assets without contractually-specified terms Education - (for example, this is my organization's first time using hedging strategies and there is a significant learning curve) Data totals for certain questions may not equal 100 percent due to the rounding of raw data to the nearest tenth of a percentage.
  7. 7. Copyright © 2018 Deloitte Development LLC. All rights reserved. 7 Jon Howard, Audit & Assurance partner, Deloitte & Touche LLP is Deloitte’s senior consultation partner for hedge accounting. “The new hedge accounting standard is one of the more interesting FASB updates in recent years – many companies are actually excited to implement it because it streamlines related practices and the financial reporting is more consistent. However, implementation is not without obstacles. As we consult with companies, we want to help executives understand the tangible value of hedge accounting and the substantial impact it can have on reducing volatility in the financial statements for their organizations.” – Jon Howard, Audit & Assurance senior consultation partner for hedge accounting, Deloitte & Touche LLP Meet Jon Howard
  8. 8. Copyright © 2018 Deloitte Development LLC. All rights reserved. 8 Bill Fellows is a Deloitte Risk and Financial Advisory partner, Deloitte & Touche LLP. He specializes in financial instruments and transactions valuation, accounting and risk management. Bill leads Deloitte’s derivatives & hedging advisory services. “ASU 2017-12 is a standard that has a lot to offer companies in all industries. Applying hedge accounting for existing strategies should become much simpler for some issuers and hedge accounting may be available for other strategies where it was effectively prohibited before. For example, entities that issue variable rate debt often decide to hedge some of the exposure to increasing interest rates through the use of interest rate swaps. Many companies will find their quarterly activities much simplified under the new standard. Businesses that use commodities in their operations often use derivatives to hedge against the risk of changes in the price of that commodity to protect their margins. In the past, achieving hedge accounting was a challenge, but many companies should find relief under ASU 2017-12.” – Bill Fellows, partner Deloitte Risk and Financial Advisory, Deloitte & Touche LLP Meet Bill Fellows
  9. 9. Copyright © 2018 Deloitte Development LLC. All rights reserved. 9 About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the “Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms. Contact Daniel Mucisko Public Relations Deloitte Services LP dmucisko@deloitte.com Shelley Pfaendler Public Relations Deloitte Services LP spfaendler@deloitte.com The statements in this report reflect the aggregation of poll responses and are not intended to reflect facts or opinions of any entities. All data, charts and statistics referenced and presented, as well as the representations made and opinions expressed, unless specifically described otherwise, pertain only to the participants and their responses to the Deloitte poll. The information obtained during the poll was taken “as is” and was not validated or confirmed by Deloitte. This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

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