Why Internal Accounting Teams Fall Short in Managing Hedge Accounting Programs
Hedge accounting is a complex practice that involves managing risks associated with financial instruments and fluctuations in the market.
While internal accounting teams play a vital role in a company's financial operations, there are certain challenges when it comes to running hedge accounting programs effectively.
In this blog, we explore reasons why internal accounting teams fall short in managing hedge accounting programs and the potential risks that can arise as a result.
Key-man risk
When hedge accounting is solely managed by one person within the internal accounting team, the process becomes reliant on a single individual, leading to key-man risk. If that person leaves the company or is unavailable, it can result in a significant knowledge gap and disruption in the hedge accounting program.
Relying on a single person for such a critical process can be risky and may hinder effective risk management.
They lack specialised knowledge of IFRS 9
Hedge accounting requires a solid understanding of accounting standards, particularly IFRS 9. Achieving expertise in hedge accounting and staying up-to-date with the complexities of IFRS 9 can be challenging without being fully immersed in hedge accounting practices on a day-to-day basis.
Internal accounting teams, whose primary focus is often broader financial operations, may not have the specialised knowledge required to navigate the intricacies of hedge accounting effectively.
It’s a month-end heavy process
Hedge accounting is not a daily accounting process but rather a month-end heavy activity. This can create unwanted bottlenecks in the internal accounting team's workflow, especially during busy reporting periods.
The additional time and effort required to reconcile and consolidate hedge accounting activities can strain resources and potentially delay critical financial reporting deadlines.
They still use spreadsheets!
Many internal accounting teams still rely on spreadsheets to manage hedge accounting activities. While spreadsheets can be useful tools, they often lack the specialised functionalities and automation required to streamline the hedge accounting process. This can lead to a time-consuming and cumbersome experience, increasing the risk of manual errors and decreasing overall efficiency.
To optimise your companies hedge accounting program, consider leveraging external expertise, or specialised systems that offer automation, comprehensive reporting, and adherence to accounting standards. By doing so, you can enhance your hedge accounting practices, minimise risk, and improve the accuracy and efficiency of your financial reporting processes.
