IFRS Accounting for Financial Instruments and Derivatives

Course Overview

The objective of this course is to give participants

• a good understanding of the principles and practice of classification, recognition, measurement and derecognition of financial assets and liabilities (including derivatives), and
• the ability to make informed decisions wherever the accounting rules permit the exercise of management discretion.

Many preparers and users of accounts who report problems with derivatives actually suffer from an inadequate understanding of the products themselves.  For this reason the course includes sessions on the basic properties, price behaviour, uses and abuses of a representative range of the basic derivative types, including forwards, futures, swaps and options.

A major focus of the course is the practical implications of the controversy surrounding the principles and practice of valuation in illiquid markets.  The course ends with a comprehensive update on the protracted replacement of IAS 39 with the proposed new standard IFRS 9.

The course makes extensive use of real-life comparative case studies and of fully worked examples.

Course Content

Detailed review of the applicable standards

• Scope, definitions and key provisions of IAS 32, IAS 39, IFRS 7 and IFRS 9
• Basic accounting mechanisms:
  • Accounting for assets on the amortised cost basis
  • Accounting for income/expense on the effective interest rate method
• Classification and measurement of financial assets:
  • Accounting for each of four categories
  • Exercising permissible choices between categories: avoiding pitfalls
  • Impairment
• Classification and measurement of financial liabilities:
  • Accounting for each of two categories
  • The ‘own credit’ controversy

Derivatives

• The products: their rationale, structure and pricing:
  • Linear-payoff derivatives and the-cost-of-carry: forwards, futures and swaps
  • Nonlinear-payoff derivatives: options and the components in option value
• The accounting: fair value through profit and loss

Hedge accounting

• Background and rationale: the elimination of accounting mismatches
• Eligibility criteria for hedged items, hedging instruments and portfolio hedging
• Designing the optimum hedge accounting relationship: aligning the risks
• Documentation and effectiveness testing
• Cash flow hedge accounting: when to use it, how to do it
• Fair value hedge accounting: when to use it, how to do it
• Some useful shortcuts – and some hidden pitfalls

Other major issues

• Fair valuation principles and practice: the Level 1-3 hierarchy and how to use it
• Disclosures and risk management
• Review of the ongoing IFRS 9 project:
  • Progress to date: classification and measurement
  • To come: impairment and hedge accounting
  • Implementation problems: the EU and the FASB convergence project

Delivering this course in-house for you to a number of participants could be very cost effective. Please call us on 020 7387 4484 to discuss this further.

If you have any questions about this seminar please write to us at post@redcliffetraining.co.uk.