Hedge Accounting: An Auditor’s Perspective

Purpose This paper aims to examine the foreign exchange (FX) risk effects of cash flow hedge accounting (HA). To the extent the HA qualification criteria and detailed documentation give investors confidence that FX derivatives effectively hedge risk, market-assigned FX risk premiums will be lower for firms using cash flow HA. Design/methodology/approach Probit analyses rely on the HA designation to examine the decision to use cash flow HA. Primary analyses test the hypothesized relationship between the magnitude of FX risk premiums and such HA use. Additional analyses allow for the interaction between cash flow HA use and the extent of FX derivatives use. Findings Hypothesis tests indicate that the magnitude of the FX risk premium is, on average, lower for firms designated as effective cash flow hedgers. In additional tests, the evidence suggests that the market assigns a lower FX risk premium to firms using a higher level of FX derivatives as effective cash flow hedges. Practical implications The findings suggest that cash flow HA provides risk-relevant information to investors. Such positive effects of HA on investors’ understanding of risk management may guide US accounting regulators in their efforts to improve HA. Corporate treasurers also may benefit from these insights into evaluating the use of HA. Originality/value Responding to the call for research on the risk relevance of cash flow HA, this paper merges the HA literature with the FX risk management literature to directly examine the relationship between HA use and FX risk premiums for manufacturing firms. The authors take an innovative approach using FX rates to which each firm is most exposed and provide evidence consistent with the argument that this approach is helpful in understanding both the decision to use cash flow HA and the effect of such HA use on market-assigned FX risk premiums.

Accounting for financial instruments has been subject to much controversy, particularly accounting practices related to derivatives held for hedging purposes. For cash flow hedges, poor matching may result when fair-value accounting is prescribed for the hedging instrument and historical cost is prescribed for the assets that generate the “highly probable forecast transaction” to be hedged. Fair-value accounting may therefore induce excess variations in earnings, which could make a firm appear to be more risky than it actually is. The alternative to fair-value accounting offered by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) to firms with hedging programs, hedge accounting, is allowed only if the designated hedge passes a test for prospective hedge effectiveness. We develop a model for the prospective hedge effectiveness of cash flow hedges and find that the “highly effective” criterion of the FASB and IASB fails to recognize the scope of variation of the hedge effectiveness of pure hedges for different types of risk exposures. Prospective hedge effectiveness is not a reliable signal of a speculative component in a derivative portfolio and, consequently, the current “highly effective” screening mechanism cannot effectively separate pure hedges from derivative portfolios that are partly or fully influenced by speculation. We link these and other findings to the current efforts of the FASB and IASB to reform accounting for financial instruments.

A long-running debate in the derivatives world involves how accounting should be handled for hedgers. The key issue is that when a derivative instrument is held for speculation, the mark-to-market cash flows are recognized immediately in profit and loss accounting, but when the derivatives component in a legitimate hedge generates mark-to-market cash flows, these are only offsetting changes in the value of the item being hedged, which are not recognized in the hedger’s P&L until the position is liquidated. “Hedge accounting” treatment allows recognition of the P&L on the derivative to also be deferred. The difficulty is how to draw the line between a legitimate hedge and a speculative position in which there is little connection between a derivative and some item it is supposedly hedging. Current practice is to determine “hedge effectiveness” by considering the “dollar offset ratio,” which is the realized cash flow on the derivatives position as a fraction of the change in value of the hedged item, or alternatively, the R-squared statistic from regressing returns on the hedged item on the contemporaneous returns on the derivative. In this article, Kawaller and Koch demonstrate that both of these measures are flawed and can be quite misleading. They propose two alternative measures that are better behaved in practice.

Views Icon Views Article contents Figures & tables Video Audio Supplementary Data Share Icon Share Twitter LinkedIn Tools Icon Tools Get Permissions Cite Icon Cite Search Site Citation John D. Finnerty, Dwight Grant; Alternative Approaches to Testing Hedge Effectiveness under SFAS No. 133. Accounting Horizons 1 June 2002; 16 (2): 95–108. doi: https://doi.org/10.2308/acch.2002.16.2.95 Download citation file: Ris (Zotero) Reference Manager EasyBib Bookends Mendeley Papers EndNote RefWorks BibTex toolbar search Search nav search search input Search input auto suggest Search

In this work we propose a new prospective model for testing the economic hedge effectiveness. Our model is derived from the initial approach based on the measure of the relative risk reduction (RRR) where the risk is expressed by the standard deviation and a Normal world is assumed. Differently, our model estimates the RRR produced by the hedging strategy in terms of the new risk measures of the value at risk (VaR) and the expected shortfall (ES). Moreover, it fails the traditional hypothesis of a normal distribution for the risk factors generating their return scenarios by Monte Carlo simulation. Because the main hedging issue especially for financial institutions is the portfolio hedging, our model has been implemented to a market risk hedging strategy, the cross hedging, realized by combining a stock index future (short position) with a stock portfolio (long position). We underline that, while our results present a strong significance from an economic viewpoint, they may be utilized only in an experimental way for hedge accounting purposes.

Ecological economics in relation to democracy, ideology and politics

Coastal areas, particularly islands, are especially vulnerable to climate change due to their geographic and climate conditions. Reaching decarbonisation targets is a long process, which will require radical changes and ‘out of the box’ thinking. In this context, islands have become laboratories for the green transition by providing spaces for exploring possibilities and alternatives. Here we explore how hydrogen (H2) energy technologies can be a critical ally for island production of renewable electricity in part by providing a storage solution. However, given the abundance of sunlight on many islands, we also note the huge potential for a more profound engagement between renewables and hydrogen technologies via the co-generation of ‘green hydrogen’ using solar fuels technology. Solar hydrogen is a clean energy carrier produced by the direct or indirect use of solar irradiation for water-splitting processes such as photovoltaic systems coupled with electrolysers and photoelectrochemical cells. While this technology is fast emerging, we question to what extent sufficient policy support exists for such initiatives and how they could be scaled up. We report on a case study of a pilot H2 plant in the Canary Islands, and we offer recommendations on early-stage policy implications for hydrogen and other solar fuels in an island setting. The paper draws on the literature on islands as policy laboratories and the multi-level perspective on energy transitions. We argue that particular attention needs to be given to discrete issues such as research and planning, and better synchronising between emerging local technology niches, the various regulatory regimes for energy, together with global trends.

In a modern globalised and liberalised era, businesses face stiff competition and are therefore under constant pressure. In such an environment, businesses typically use creative accounting practices. The aim of the present article is to analyse the possibilities of using the chosen technique and method of manipulation by profit on the selected company. The company analysed in the presented article is a company that "optimized" its financial statements for tax purposes in 2018. The article submitted shall consist of four parts. The first part deals with the issue of creative accounting in general, but also in the Slovak Republic. The second part deals with the methods that have been used within the framework of the article. In the present paper we will look at two models: the Beniesh model and the Kanapickiene – Grundiene model. The third part of the article is devoted to the analysis of the possibility of using the chosen technique and method of manipulation of profits on the selected company in the conditions of the Slovak Republic. Part three of the article also includes a discussion on the subject. The fourth part of the article deals with the conclusions drawn from the research. The descriptive method, analysis, mathematical methods, comparison and synthesis were used in the processing of the submitted paper creation.

Independent agencies are exempted from the accountability mechanisms inherent in the ministerial hierarchy. To compensate for this, politicians incorporate all kinds of information and reporting requirements into the statutes of the organizations. However, the degree to which this occurs varies considerably, which raises the question: Why are some agencies are made more accountable than others? This study examines the impact of political salience on degrees of accountability, controlling for other potential explanations. Using original data on 103 independent agencies in the Netherlands, the analysis demonstrates that salience has a twofold effect. First, agencies dealing with more salient issues are made more politically accountable. Second, agencies whose statutes are written when the issue of accountability is more salient are also subject to higher degrees of accountability. Other explanatory factors are the number of veto players and the legal basis of the organization.

Education is not just learning of facts - but the training of the mind to think. -Albert Einstein Dermatology as a discipline is rapidly evolving and has evolved from "sit and treat" or "armchair" dermatology to interventional dermatology; from clinical dermatology to complex derma sciences. This has also coincided with globalization and internet explosion, with challenges in the practice of dermatology. Learning dermatology has, therefore, become far more complex and multifaceted. Continuous and varied learning have become the necessities. This is particularly important when there is a rapid transition from previous older methods of diagnosing and managing skin disorders to present era of advances in the understanding of molecular/genetic basis of various dermatoses, diagnostic methods, and treatment modalities such as biologics, novel immunosuppressives, gene therapy, dermatosurgery techniques, and lasers.[1] Residency programs are the time for the beginning of learning - the time when a young doctor gets exposed to the glory of dermatology in all its facets and images. This is the time they are mentored at the hands of a teacher. However, opportunities and facilities for learning are not uniform and vary greatly from center to center across India. This leads to varying standards in teaching and learning. Furthermore, with the advancement of technology and research, older methods of teaching are not just enough, and there comes the need to learn from different sources. Hence, there is a great demand to make available opportunities for residents to learn regardless of the facilities in their respective colleges so that they can face the challenges and impart the best possible care to their patients. Indian Association of Dermatologists, Venereologists and Leprologists (IADVL)[2] has recognized these needs and instituted some programs to facilitate the learning process. This article seeks to give an overview of these programs and efforts on behalf of IADVL to be responsive to the needs of residents and also discuss the challenges in the delivery of such programs. Scholarships, fellowships, observerships, mentorships, workshops, online education, and research grants are all different tools to make IADVL responsive to such changing needs. Scholarships: These are very important ways of providing financial help for a resident to seek learning opportunities. Hitherto, IADVL had only American Academy of Dermatology (AAD) scholarships in association with AAD. Selection for which is generally done in July every year and the awardees get an opportunity to attend AAD annual meeting to present their scientific work. This year in 2015, this scenario changed, and IADVL started an all year scholarship program with a budget of 20 lakhs INR. Scholarships were announced for four international meetings - World Congress of Dermatology (WCD), European Academy of Dermatology and Venereology (EADV), South Asian Regional Conference of Dermatology, Venereology and Leprology (SARCD), symposium of International Society of Dermatopathology (ISDP), and our own Annual National Conference DERMACON. Objective criteria were laid down for selection which included mandatory registration for the congress, acceptance of an oral paper or poster, nonavailability of grant from other sources, etc. Members were reached through bulk SMS and E-mails and also informed in the IADVL e-groups and notices on IADVL website.[3] While there was an enthusiastic response to the WCD scholarships, SARCD, EADV congresses, and DERMACON, there was a poor response to ISDP symposium. This indeed was disappointing as dermatopathology is the foundation for learning dermatology. The other observation has been that students from certain institutions are at an advantage as they are more aware, possess a greater curriculum vitae (CV) simply because of the nature of the training programs and available facilities Grants: IADVL has had different types of research grants; IADVL-SUN Pharma, IADVL-Galderma, IADVL- L'Oreal, and IADVL-Special Interest Group (SIG) grants - amounting to about 64 lakhs INR. The subjects covered include all major fields of dermatology including venereology, leprosy, and trichology. The assessment is very objective, and criteria include the relevance of subject, feasibility, methodology, and ethical clearance. Here too, the outcome has been mixed. Observations are that certain centers repeatedly apply and are more adept and at an advantage in obtaining such grants – others do not yet know the art and science of conducting studies and hence do not submit appropriately. There was a great variation in the types of applications and some centers needed guidance on how to submit grants. The SIG of clinical trials had to be involved in guiding these applicants to prevent summary rejection Fellowships and observerships: One-month training in different areas such as dermatopathology, lasers, surgery, phototherapy, vitiligo surgery, and trichology are available through IADVL. In 2015, IADVL increased the number of centers (which included private centers, and not just Govt. Medical Colleges) as well as the number of such training programs. The expectations of the resident applying for these programs were high often expecting hands-on training in such a short duration. Certain centers wished to charge a fee and others objected to the use of the term fellowship as those centers had longer 1 year fellowship, hence the training is now termed observership. More residents should apply to get benefit of these excellent learning observership programs Online education: Access to internet and technology has meant great opportunity for universalizing education. This has deeper and faster penetration to the masses than the print media. IADVL initiated a presidential lecture series called DERMAGYAN - lectures by senior reputed teachers, which are webcast and residents can watch them anywhere anytime. These included lectures on clinical dermatology, dermatopathology, and trichology. There were also online webinars on psoriasis and vitiligo in the year 2015. Until January 2016, 16 such lectures have been webcasted and the details are available on our official website www.iadvl.org.[2] Dermatosurgery workshops which were also webcasted meant a bonanza of learning, available and accessible to all and were greatly appreciated Mentorship program: IADVL General Secretary initiated the residents program and mentorship program (2014–2015), a forum where residents can interact, learn from each other and under mentors. They also have a resident IADVL group in Facebook™ and an E-bulletin called Resi-DREAM to facilitate exchanges of various scientific information. This is a group which hopefully progress further and mature into a broad-based program to benefit all residents Learning through App: IADVL started an App for its members called DERMAPP - while still in its infancy, this is a tool which can be used increasingly to make available various resources to all residents within a short span of time. The App is available in both android and iOS platform and makes learning easy on the go. This App also includes latest tools such as surveys and videos. In the coming years, this technology will be increasingly be used for education of residents Research methodology workshops: Another great step initiated by IADVL in recent past was the research methodology workshops which sought to teach how to conduct research. Eight such workshops have been held in all parts of India in 2014–2015. These workshops have trained a large number of dermatologists, and it is hoped that these will further train younger doctors in study designs and basic statistics Workshops: IADVL organized nearly 30 workshops all over India during 2015 in different fields such as lasers, dermatosurgery, esthetics, dermatopathology, genodermatoses, drug reactions, and leprosy. These were done at minimal registrations or without registrations and served to help residents and members to get exposure in these fields. Importantly, these meetings were not limited to metros, but held in tier 2 and tier 3 cities, facilitating creation of awareness and spread of knowledge Newsletter: A number of E-newsletters in addition to our journals provided learning opportunities. These were published by different SIGs and the academy called DERMAACADEMIA. These dealt with topics of relevance and importance to all dermatologists Another important effort of IADVL was in the direction of influencing statutory, regulatory bodies such as Medical Council of India (MCI) and National Board of Examinations in matters of relevance to dermatology education. Our efforts bore initial fruit as in response to our demand to initiate postdoctoral certificate courses, MCI instituted a taskforce to suggest syllabus, and curriculum to initiate a fellowship in dermatosurgery of which the author is a member. National Board of Examination (DNB) also responded positively, and it is hoped that very soon we will have 1 year fellowships in different subspecialties such as dermatosurgery, aesthetic dermatology, dermatopathology, trichology, and pediatric dermatology. Challenges on the way: Making these resources available is one aspect making them accessible and applicable to all is entirely another challenge. Several challenges did arise in the administration of these tools; How to make them objective and avoid bias in selection? How to universalize them? How to reach all residents? How to help students from remote and smaller institutions who are at a disadvantage? How to make subjects such as dermatopathology get the attention that they deserve? How to enhance quality of research projects submissions? These are questions that we continue to seek answers. Our IADVL Academy[3] consisting of erudite dermatology colleagues have worked continuously to improve our existing systems and processes so that best results are achieved. Learning has to be persistent and continuous - a saw has to be sawn regularly. Moreover, as Nourma Fauziyah said, "Learning how to learn is one of the most important skills in life." Together lets work for a brighter tomorrow for IADVL.

La problemática de la ganancia en la economía y su relación con la contabilidad empresarial

Innovations in the biomanufacturing industry are predominantly incremental in nature, but there are occasional major technological shifts that occur as existing technologies reach their limits and as additional constraints are imposed by market forces or regulatory bodies. These disruptive innovations tend to have a seismic effect, forcing companies to adopt novel strategies and business models in order to remain competitive. In this article, we discuss how technological innovation can address some of the current challenges in biopharmaceutical manufacturing by anticipating shifts in market dynamics and cost structures. We consider bioprocessing standards, unit operations, best practices, enabling technologies and look at potential entry points for innovation where technologies are likely to evolve incrementally and where more disruptive, radical changes may flourish, including quality by design and process analytical technology. We conclude that the biomanufacturing industry can only thrive in the changi...

The main topic of the present article is the problem of the fate of the Roman town of Fulfinum, the second town of the island of Krk (Kvarner, Croatia), between Late Antiquity and the Early Middle Ages. Here we will briefly examine the datation and the conditions of its creation ex nihilo, concentrating on the results of the latest archaeological excavations, which over the past number of years have been focused on the roman forum, and on the late antique necropolis. In previous works, it has been established that this Roman town was abandoned by the end of the 4th century, despite the fact that a basilica was erected somewhere around the mid 5th century in the nearby suburb. The results of the new excavations presented here will prove that the population did not abandon the town as early as the 4th century - the forum was still in use, although with a radical change in function - between the 5th and the 7th century, and the necropolis situated between the town and the church demonstrates the presence of a lay population. Furthermore, new considerations are presented on the causes of its final abandonment.

COUNT: Blockchain framework for resource accountability in e-healthcare

The study examined Pension Fund administrators and Financial Transparency of Retirement savings funds of Nigeria. The paper posit that pension fund administrators faces numerous challenges that hampers financial transparency in the management of retirement savings funds of Nigerian retirees. Using an historical method involving a critical but systematic analysis of secondary data, the findings revealed amongst other things that in Nigeria, low level of transparency and compliance had been reported among operators of Nigerian Contributory Pension Scheme. The studies documented unsatisfactory level of transparency and compliance among Contributory Pension Scheme operators and employers of labor in Nigeria. In exploring issues of transparency and accountability in pension fund administration in Nigeria, it was revealed that corruption remains a pervasive challenge in Nigeria, and pension fund administration is not immune.  It was also revealed that there are gaps in regulatory oversight and enforcement. Inadequate monitoring and supervision can allow malpractices to go unchecked. Insufficient transparency in reporting practices was also identified to hampers stakeholders' ability to assess the performance and integrity of pension fund administrators. Furthermore, lack of adequately trained personnel within regulatory bodies and pension fund administrators with Insufficient expertise in governance, risk management, and financial oversight hinders efforts to promote transparency and accountability. Finally, political interference in pension fund administration was also identified as undermining transparency and accountability efforts. Nepotism, favoritism, and patronage networks was in addition noted to influence decision-making processes, compromising the integrity of the system. Based on these findings, the following recommendations were outlined: PenCom should take the challenge of technological advances seriously by modernizing its systems, because the traditional approaches to business management is fast fading out. The adoption of Information and Communication Technology based methods instills reliability and confidence in the information produced. Second, PenCom should engage in effective oversight and monitoring of the PFAs and PFCs to ensure compliance with the provision of the Act. More so, government should empower PenCom to summon the Chairmen, Directors or Managers of non-compliant employers and impose severe sanctions on them. Above all, PenCom should embrace high level standard of corporate governance. While tapping into global expertise for training and education of staff, systems development, technology and information communication technology. Keywords: Pension, Transparency, Accountability, Fund Administrators