Hedge Accounting Hacks for 2025 to Minimise Effort & Maximise Efficiency
Are you looking to minimise effort and maximise efficiency in your hedge accounting operations? Hedge accounting is a great way to stabilise your financial performance; however, it can drain hours of your time each week.
The good news is that there are strategies you can implement to reclaim your time without sacrificing the quality and accuracy of your hedge accounting program.
In this article, we’ll explore five hedge accounting hacks you can apply in your organisation going into 2025.
Create Accurate Policy Declarations
Although policy declarations aren’t required under IFRS 9, they are helpful to add to your hedge accounting documentation. A policy declaration is a statement that outlines the intent of the specific transaction and the accounting rules you will be applying, such as minimising earnings volatility. Creating accurate policy declarations helps your team understand the purpose of the hedge and what guidelines they should follow. Including links to applicable sources and other documents is also helpful in increasing efficiency in hedge reporting.
Define Your Risk Management Strategy
Defining your company’s risk management strategy is another important component to maximise efficiency. A well-defined risk management strategy reduces questions surrounding the overarching goal of your hedge accounting function.
Know Your Testing Frequency
Hedges aren’t a set-it-and-forget-it strategy. Instead, each hedge needs to be tested regularly. A schedule reminding employees when hedges need to be reviewed prevents missed testing, catches ineffectiveness quicker, and keeps your hedge accounting function compliant. For example, if hedges need to be tested every six months, you can set recurring calendar alerts, minimising efforts.
Prioritise Hedge Relationship Forms
A hedge relationship form documents hedges that qualify for a hedge relationship. Failure to create hedge relationship forms could result in the disallowance of the beneficial hedge accounting treatment. Before a new hedge is created, have a checklist that employees must follow, which includes generating hedge relationship forms.
Your checklist might require that employees evaluate credit risk, document how the hedge will be tested for ineffectiveness, and define the testing frequency. Creating a standard process for preparing hedge relationship forms will improve efficiency and accuracy in your organisation.
Even if you don’t invest in a Treasury Management System (TMS), you can still streamline your hedge accounting function. For one, consider developing a semi-automatic process where only certain sections of the forms change based on the individual hedging amounts. Keeping most of the document static will lower the time it takes to prepare hedge accounting documentation. Similarly, you can also prepare the forms in bulk at monthly intervals.
Leverage a TMS or Similar Tool
A TMS is a software program designed to house all information related to your hedges. A unified system, like Hedgehog’s platform, saves your employees time by eliminating the need to switch between programs or track down information on other platforms.
Summary
Which of these strategies can you implement to minimise effort and maximise efficiency? If you still find your team spending hours creating hedge documentation or having trouble complying with the rigid requirements of IFRS 9, consider outsourcing your hedge accounting to a professional.
At Hedge Effective Advisory, we offer advisory and managed services designed to infuse efficiency into every aspect of your hedge accounting function. Reach out today to schedule your free consultation.