Derivatives and Hedging Advisory Services

How Deloitte Risk and Financial Advisory can help

We help clients:

• Increase transparency: Helping hedgers understand the price of the derivatives that include embedded costs and profits
• Reduce complexity: Explaining derivative pricing mechanisms as well as accounting and financial statement impact
• Assess compliance: Providing advice to assist with compliance in a growing regulatory environment and on authoritative literature such as Accounting Standards Codification Topic 815, Derivatives and Hedging (ASC 815, formerly FAS 133)
• Meet reporting requirements: Providing recurring assistance in calculations of fair value and elective hedge accounting metrics

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Accounting and valuation outsourcing

US Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS) can be technically demanding. Our team of experienced transactional accountants offers deep experience and will serve by your side to help ease complex transactions. We proactively address hedge accounting before the transaction, which may save significant effort and cost. In addition, we assist our clients with derivative valuations for many or all existing and anticipated positions, including the analytics required to meet hedge accounting and hedge strategy needs.

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Governance and strategy development

Deloitte Risk and Financial Advisory assists companies build a framework and consider the relevant regulations so that the company’s board and management incorporate the appropriate regulatory considerations into decision-making and hedging strategy. We can help you:

Understand regulations: In an effort to reduce counterparty risk and increase transparency, the Dodd-Frank Wall Street Reform & Consumer Protection Act has increased the complexity and requirements for derivative end-users. It is vital to understand how it applies to each organization.

Analyze the economics: Requisite compliance requires both activity and documentation. As such, end-users should have systems in place for proper bookkeeping and reporting. Additionally, while regulatory guidance is clear in some areas, much is still undefined. It is vital to keep up to date with changes.

Maintain compliance: Regulations can be resource intensive and the decisions end-users make could have significant cost impact. End-users should optimize their hedging strategy and determine the efficient route in their selection of trading platforms, futures commission merchants, swap data repositories, etc.

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Deloitte Risk and Financial Advisory’s framework

Our risk management framework addresses the appropriate policy limits within a company’s specific objectives and constraints. We use the following steps to analyze the appropriate alternatives and recommend the leading course of action for each circumstance.

Identify & measure risks and alternatives based on multiple factors:

• Pricing
• Cost of collateral
• Accounting
• Economic fit
• Credit exposure
• Counterparty selections
• Flexibility
• Operational risk as it relates to derivatives

Analyze & define
We can help create a policy that fits your specific business objectives and constraints, your risk tolerance, and financial capacity. This process would help set limits to fulfill the board’s fiduciary responsibilities, and develop procedures that illustrate how management will comply with the board’s policy limits.

Monitor & report
We help companies set monitoring and reporting protocols that will keep the company within set limits, as well as establish critical metrics and frequencies that capture position sensitivities. Finally, we help build meaningful reports that inform company management, decision-makers and regulators.

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Related articles

Below are additional resources that provide more information about derivatives and hedging:

• Heads Up—FASB proposes targeted improvements to hedge accounting, 9/14/16
  
• Highlights from the FASB’s June 29, 2015, meeting
• EITF Snapshot–June 2015
• Hedging—FASB discusses direction of hedging project

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