Important accounting standards require a compliant hedge solution
Hedge management and hedge accounting are applied in the finance and corporate environments for various purposes. The two most important accounting principles, IFRS 9 and US GAAP (ASU 2017-12), require new hedge application approaches.
SAP’s new hedging solution ensures compliance with new IFRS and US GAAP standards
Therefore, SAP developed new FX risk hedge functionality based on SAP’s so-called “Hedge for Positions” to be compliant with the new IFRS and US GAAP regulations.
Highlights of SAP’s new Hedge Solution
- Seamless, complete integration
- NPV calculations including credit value adjustment (CVA) and debit value adjustment (DVA) components utilizing the credit spread curve functionality
- Linear regression analysis for the prospective effectiveness test at inception day
- Exposure management and net exposure calculations to determine the need for further hedge activities
- Hedge requests and integration with trading platforms for direct trade executions
COMPIRICUS' Add-ons complete SAP's Hedge Solution: Manage long-term debts as well
While SAP TRM’s primarily interest rate hedge focus is on investments, COMPIRICUS has extended TRM’s functionality with additional features to facilitate long-term debts as well. The highlights of COMPIRICUS’ enriched functionalities are:
- COMPIRICUS Bond Issuance Management
For bond issuance, fair value hedge basis adjustments can be achieved with our COMPIRICUS Bond Issuance Management add-on. If the hedge inception date is not the bond issue date or loan origination date, standard SAP is unable to support the scenario. Our solution allows for book value adjustments and amortizes them over the life of the hedge relationship period with the requisite calculation and postings. Total coupon method and benchmark method are both supported (ref. ASC 815).
Example of a linear regression analysis in SAP TRM (FVH IR: issued bond vs IRS)
- Debt: book value equals face value for unhedged period
- Hedged period: interest rate changes effect book value
- Different methods to consider changes of market interest rate supported: benchmark method and total coupon method
- Interest rate risk and price risk hedges
FX risk hedge on investments is now possible with the enriched COMPIRICUS functionality. Standard SAP TRM/FAM only supports interest rate risk and price risk hedges using “Hedge for Positions” which is primarily used by insurance companies.
- COMPIRICUS Credit Spread Calculator
This add-on determines the implied spread of a bond and can assign that spread to SAP’s standard credit spread curves with much higher granularity. This increases the efficiency of the SAP standard functionality.
You can explore details in our conference presentations held together with AFLAC and Google LLC.
Google LLCClick for conference brochure download
Practical Guide to Implementing the New Hedge Management and Hedge Accounting – What Did Google Do?
• Hear how Google co-innovated with SAP to enhance the hedge management and hedge accounting functionality for SAPS/4HANA and completed the first implementation of the solution.
• Explore the challenges and success of the project – process, technology, people.
• See what changes were necessary to implement a best-in-class solution for hedge management and hedge accounting.
• Get an overview of the benefits achieved by the organization as a result of the implementation.
(Shaun Hazen and Arthur Zeyda, Google LLC.; Howard Chin, COMPIRICUS Inc.)
COMPIRICUS is confident we have the expertise and project experience to make a high-impact contribution to your project initiative implementing SAP’s new hedge solution… and more
Your contact person
Contact us if you would like to schedule a personal meeting or additional information on Hedge Management and Hedge Accounting with SAP TRM or SAP FAM. We would be happy to answer your questions. Please contact Howard Chin by telephone or by email
Phone: + 1 617 273 8045 | Email: firstname.lastname@example.org