new-changes-to-ifrs

Treasury Hot Topic New changes to IFRS - The legacy of IAS 39 and now IFRS9 - Are you ready?

www.pwc.com

Kristof De Smedt, PwC

PwC 2

Agenda

1/ Introduction

2/ Hedge accounting

3/ What new opportunities / challenges will this bring ?

4/ Next steps

February 2011

3PwC

Introduction

February 2011

PwC 4

Background to IFRS 9

Replacing IAS 39

February 2011

* Application is subject to EU endorsement** This will be “re-exposed” via workshops or a partial ED or both

Overall timeline

Effective date should beginning on or after 1 January 2013, with earlier application permitted

PwC 5

Background to IFRS 9

IASB Objectives

versus

Users Preparers

February 2011

6PwC

Hedge accounting

February 2011

PwC 7

Hedge accounting - overview

Macro

Separate ED 2011

Groups

Eligibility

Presentation/ Accounting mechanics

Micro

February 2011

Hedging instrument

Hedged item

Qualification

Presentation/ Accounting mechanics

Rebalancing/ Discontinuation Disclo

sure

s

PwC 8

Hedge accounting

•80 – 125 rule

February 2011

•Risk components of non-financial items

PwC

Hedging of risk components

9

Variable element

Benchmark(e.g. commodity

price)

Benchmark(e.g. commodity

price)

Fixed element

IA

S 3

9 H

edga

ble

Exp

osur

e

ED

Hed

ge

avai

labl

e

Alignment of risk management with hedge accounting

PwC 10

Hedge accounting

•80 – 125 rule

February 2011

•Synthetic exposure

•Risk components of non-financial items

•Options

•Rebalancing

PwC 11

Rebalancing

February 2011

One (continuing) risk management and hedge accounting relationship

PwC 12

Hedge accounting

•80 – 125 rule

February 2011

•Synthetic exposure

•Risk components of non-financial items

•CFH: basis adjustment

•FVH: mechanics

•Options

•Rebalancing

•De-designation

PwC

FV hedge accounting

•

Profit and lossIAS 39 ED

Interest expense 11 10

Hedge ineffectiveness - 1

Loss after tax 11 11

Other comprehensive income

Hedging instrument gains

- 20

Hedged item losses - (21)

Ineffectiveness transferred to P/L

- 1

Total Comprehensive Income - gain / (loss)

11 11

Balance sheetIAS 39 ED

Assets

Derivative 20 20

Liabilities

Hedged item 121 100

FV of hedged risk - 21

PwC 14

Hedge accounting

•80 – 125 rule

February 2011

•Synthetic exposure

•Risk components of non-financial items

•CFH: basis adjustment

•FVH: mechanics

•Options

•Rebalancing

•De-designation

•Disclosure

PwC 15

Hedge accounting

•Gross group

February 2011

•P&L presentation

•Net positions

16PwC

What next opportunities / challenges will this bring ?

Increased risk management alignmentversus

increased transparency

February 2011

PwC 17

Hedging of risk components

February 2011

Metal price = LME price + (floating) natural gas surcharge + producer’s fixed premium

PwC 18

Hedging with options

February 2011

Transaction related Time period relatedvs.

PwC

Net position hedging

• Foreign currency sales of 100 and expenses of 80

• Forward contract for 20 taken out at a rate of 1.33

• Margin locked in at 15

• Spot rate at settlement of 1.25 resulting in loss on the forward of 1

19

Translated at forward rate

IAS 39 accounting

ED accounting

Sales 75 79 80

Expenses (60) (64) (64)

Hedge result - - (1)

Operating profit 15 15 15

PwC 20

Disclosure

February 2011

PwC

Disclosure

21

22PwC

Next steps

February 2011

PwC 23

Next steps

Raise awareness of proposals

February 2011

Perform high level impact analysis

Comment letter period ends on 9 March 2011

Revisit your risk management strategies

Together we can move mountains…

© 2011 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

PricewaterhousecoopersWoluwedal 181932 St-Stevens-WoluweDirect Phone +32 2710 9628Mobile +32 478 [email protected]

Kristof De SmedtSenior ManagerTreasury Consulting